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.
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