Taiwanese firms that want to invest in China should take note: Rising labor and raw materials costs could be unbearable and eat into profits if they fail to mitigate those risks, according to a survey released yesterday by Taiwan Electrical and Electronic Manufacturers’ Association (TEEMA, 電電公會).
The survey indicated that Taiwanese firms may not be able to keep up with the rising labor costs as China sheds its image of being the world’s sweatshop and the spiraling cost of raw materials could send their finances into the red.
Since 2000, TEEMA has surveyed the investment environment feasibility of more than 100 Chinese cities and released an annual investment “pros and cons” guide for Taiwanese companies and businesses.
TEEMA said that the “Foxconn effect” spurred a domino effect, which has led local governments in China to call for basic wage raises, and that has weighed on Taiwanese enterprises’ finances.
Hon Hai Precision Industry Co (鴻海精密), whose trade name is Foxconn and who is one of Taiwan’s biggest investors in China, increased Chinese workers’ salaries last year in an effort to tackle incidences of suicide among its workers.
The booming Chinese economy has attracted an influx of local and foreign investments, therefore straining raw material supplies and sending costs sky high, the survey said.
Another challenge is China’s infrastructure, which often sees power and water shortages disrupting operations at production facilities, Lu Hung-te (呂鴻德), a business management professor at Chungyuan University, told a press briefing.
Lu was the project leader in charge of the latest TEEMA survey.
Also, the expanding divide between rich and poor is likely to lead to a rise in social unrest, such as riots, which could dampen investor sentiment, he said.
In spite of those downsides, TEEMA said Taiwanese enterprises should still continue to tap into China’s booming economy, especially as the country is launching its 12th five-year economic plan this year.
“This plan allows China to move toward service industries instead of manufacturing and allows its economy to be more focused on internal consumption instead of export-oriented,” Lu said.
The exponential domestic demand in China cannot be overlooked, Lu added.
The TEEMA survey also pointed out that western parts of China have risen above southeastern coastal provinces to become the most favorable investment regions for Taiwanese enterprises, with Chengdu, Chongqing and Xian the three rising star cities.
This is because coastal provinces are generally more developed and wages are rising, while local governments in the inland western regions have been luring foreign investments with incentives.
The TEEMA survey concluded by saying that, in terms of investment attractiveness, Kunshan; Suzhou Industrial Park; Suzhou city; Jiangning in Nanjing; Binhai in Tianjin and Chongqing were the top six locations, in that order.