Investment from overseas firms could total US$8bn

CAPITAL RETURNS::Recent proposals could mark a trend for Taiwanese firms based overseas to return, as rising costs and other obstacles make offshoring less attractive

By Crystal Hsu  /  Staff reporter

Fri, Mar 01, 2013 - Page 13

The government’s ongoing efforts to attract investment from Taiwanese firms based overseas is bearing fruit, with at least US$8 billion worth of projects likely to be secured this year, Barclays Capital PLC said.

If realized, these investments could lift Taiwan’s GDP growth by 0.1 of a percentage point, with an extra 0.04 of a percentage point added during the construction phase, which could reverse the decline in the manufacturing sector’s share of employment, said Leong Wai Ho (梁偉豪), a Singapore-based senior regional economist at the research arm of UK-based Barclays.

“An emerging trend this year is the relocation of Taiwanese businesses from China back to Taiwan as16 projects have been approved,” Leong said in a report released on Wednesday.

The planned investments mark the beginning of a trend of a return of capital from the estimated US$200 billion in fixed capital stock that Taiwanese have invested in China since the 1980s, he said.

More investments are likely to be announced as the government is stepping up its promotional campaigns in China, Leong said.

The recent appointment of Council for Economic Planning and Development Minister Kuan Chung-ming (管中閔) suggests that promotional efforts will intensify, since Kuan is a champion of the investment program, Leong said.

“We expect to see a record US$8 billion in investment commitments this year from Taiwanese firms based abroad, mostly in the higher-value-added electronics and precision engineering manufacturing sectors,” he said.

The figures have yet to account for investments from the broader base of Chinese companies interested in acquiring assets in Taiwan as the government further eases investment restrictions, he said.

The return of capital may revitalize electronics production in Taiwan, which has been weakened over the past three decades, as many firms moved their manufacturing facilities to China and other places with lower labor costs, he said.

Winning more investment from overseas is a key part of the government’s plan to raise total investment by 10 percent from last year to NT$1.2 trillion (US$40.4 billion) this year.

Rising production costs in China, particularly in the labor market, are driving the move to Taiwan, as Beijing often views foreign companies as an unwelcome source of competition for Chinese enterprises rather than a useful source of technology and training, Barclays said.

Some Taiwanese businesses have relocated from the coastal regions to inland China, where costs are lower, but where infrastructure may not be up to standard, Leong said, adding that other firms have moved to cheaper locations in Southern Asia and to ASEAN nations such as Vietnam and Indonesia.

The investment could end the decline in the manufacturing sector’s share of employment, which fell from over 32 percent in 1990 to 27 percent last year, Leong said.

This trend could gradually spur wage growth in the nation, especially as manufacturing wage growth often outpaces wage growth in services, especially when exports gain momentum, he said.