The launch of “free economic pilot zones” in Taiwan will help it attract more investment from foreign firms and Taiwanese businesses based in China, according to British banking group Barclays PLC.
The project can help Taiwan draw in US$12 billion of foreign direct investment this year, including US$10 billion from Taiwanese “returnee companies” that had previously moved production to China, the bank said in a research note on Thursday.
Last year, Taiwan attracted US$10.5 billion in such investment, including US$7.9 billion from returnee companies during the first 11 months of the year.
“We estimate the resulting investments could lift trend growth by 0.2 percentage points on an annual flow basis, likely from mid-2015,” said Leong Wai Ho (梁偉豪), a senior regional economist with Barclays, predicting that Taiwan’s economic growth could reach 3.5 percent this year and 4.5 percent next year.
One factor driving inward foreign direct investment is the narrowing of China’s cost advantage over Taiwan, Leong said.
Between 2002 and 2012, wages rose an average of 14.1 percent in China, but just 1.4 percent in Taiwan. During this period, the average wage of a Chinese factory worker rose from just 10 percent of that of a Taiwanese worker, to 37 percent, he said.
Relatively cheaper wages should boost Taiwan’s ability to compete for foreign direct investment as well as human capital and expertise, reversing the trend of local companies relocating manufacturing to China, Leong said.