After two decades of manufacturers relocating abroad, it is time for “made in Taiwan,” driven by a combination of external push and domestic pull factors, DBS Bank Ltd said in a report issued on Thursday.
Whether the situation could continue in a more sustainable manner remains to be seen considering the nation’s labor demand and land supply, the Singaporean bank said.
DBS said it would be reasonable for Taiwanese companies with Chinese operations to return home if they plan to manufacture high-end products or if their products target the US market, but not for those with higher labor demands.
In the report, the bank compares 12 supply-side factors to examine the pros and cons of manufacturing in China and Taiwan. It found China remains more competitive than Taiwan in terms of labor and land costs. Average wages in China are below US$1,000 per month, compared with more than US$1,500 in Taiwan, while industrial land prices in major Chinese cities are about 10 percent of those in Taiwan.
However, Taiwan’s investment environment outperforms China’s in terms of lending costs, tax burden, tariff costs, productivity, automation and intellectual property (IP) protection, DBS said.
For instance, lending in China costs more than in Taiwan in light of strong demand and tight liquidity conditions, with the one-year prime lending rate in China standing at 4.25 percent, compared to Taiwan’s base lending rate of 2.64 percent, the report said.
The corporate tax rate in China is also about 25 percent, 5 percentage points higher than in Taiwan, while the average tariff rate imposed on imports tallied 3.83 percent in China in 2017, compared with 1.86 percent in Taiwan, the report added.
Moreover, Taiwan’s labor productivity surpassed US$100,000 per worker in 2017, triple that in China, while the robot intensity — the number of installed industrial robots per 10,000 employees in the manufacturing industry — hit 177 in Taiwan in 2016, compared with 68 in China, it said.
As a result, DBS said production transfers from China to Taiwan could be justified for companies aiming at higher-value production with less labor content, as they would benefit from Taiwan’s skilled workforce, lower financial burden and better technological infrastructure.
According to the latest tallies released by the Ministry of Economic Affairs on Wednesday last week, 134 Taiwanese firms have pledged to return home and invest more than NT$584.1 billion (US$18.8 billion) in Taiwan since the beginning of this year, encouraged by government support measures including low-interest loans, employment subsidies and streamlining of administrative procedures.
In addition, there is evidence that local production has advanced since the beginning of this year amid the lingering US-China trade spat, with Taiwan’s exports to the US reporting an annual gain of 18.6 percent for the first eight months of the year, compared with the annual growth of 7.6 percent over the same period last year, DBS said.
Taiwan’s overseas production ratio dipped from 52.1 prevent a year earlier to 50.5 percent for the first seven months, with the ratio for the information and communication industry falling by 2 percentage points to 92 percent over the period.
However, whether Taiwanese manufacturing can continue to improve on a broader and more sustainable basis would depend on whether labor and land problems are solved, DBS economist Ma Tieying (馬鐵英) said in the report.
“Effective measures would include further promoting the application of automation technology, relaxing foreign worker rules, cracking down on land hoarding, [and] increasing public land supply under industrial parks,” Ma said.
The US dollar was trading at NT$29.7 at 10am today on the Taipei Foreign Exchange, as the New Taiwan dollar gained NT$1.364 from the previous close last week. The NT dollar continued to rise today, after surging 3.07 percent on Friday. After opening at NT$30.91, the NT dollar gained more than NT$1 in just 15 minutes, briefly passing the NT$30 mark. Before the US Department of the Treasury's semi-annual currency report came out, expectations that the NT dollar would keep rising were already building. The NT dollar on Friday closed at NT$31.064, up by NT$0.953 — a 3.07 percent single-day gain. Today,
‘SHORT TERM’: The local currency would likely remain strong in the near term, driven by anticipated US trade pressure, capital inflows and expectations of a US Fed rate cut The US dollar is expected to fall below NT$30 in the near term, as traders anticipate increased pressure from Washington for Taiwan to allow the New Taiwan dollar to appreciate, Cathay United Bank (國泰世華銀行) chief economist Lin Chi-chao (林啟超) said. Following a sharp drop in the greenback against the NT dollar on Friday, Lin told the Central News Agency that the local currency is likely to remain strong in the short term, driven in part by market psychology surrounding anticipated US policy pressure. On Friday, the US dollar fell NT$0.953, or 3.07 percent, closing at NT$31.064 — its lowest level since Jan.
Hong Kong authorities ramped up sales of the local dollar as the greenback’s slide threatened the foreign-exchange peg. The Hong Kong Monetary Authority (HKMA) sold a record HK$60.5 billion (US$7.8 billion) of the city’s currency, according to an alert sent on its Bloomberg page yesterday in Asia, after it tested the upper end of its trading band. That added to the HK$56.1 billion of sales versus the greenback since Friday. The rapid intervention signals efforts from the city’s authorities to limit the local currency’s moves within its HK$7.75 to HK$7.85 per US dollar trading band. Heavy sales of the local dollar by
The Financial Supervisory Commission (FSC) yesterday met with some of the nation’s largest insurance companies as a skyrocketing New Taiwan dollar piles pressure on their hundreds of billions of dollars in US bond investments. The commission has asked some life insurance firms, among the biggest Asian holders of US debt, to discuss how the rapidly strengthening NT dollar has impacted their operations, people familiar with the matter said. The meeting took place as the NT dollar jumped as much as 5 percent yesterday, its biggest intraday gain in more than three decades. The local currency surged as exporters rushed to
RSS