Taiwan’s tycoons are reining in 20 years of expansion in China to invest at home, pressuring the central bank to stem gains in the New Taiwan dollar as strategists see it rising more than the yuan for the first time since 2007.
In the five months since President Ma Ying-jeou (馬英九) cut taxes and increased foreign-labor quotas to lure investment, 26 companies from Largan Precision Co (大立光) to Kenda Rubber Industrial Co (建大輪胎) filed proposals to put US$5.9 billion to work locally, more than triple the amount for 2011, the Ministry of Economic Affairs said.
The government envisages its programs will create 26,000 jobs.
“We’ve been talking about Taiwan’s industries hollowing out for 20 years, but this is starting to change,” Frances Cheung (張淑嫻), a senior strategist at Credit Agricole CIB in Hong Kong, said in an interview on Friday last week. “Returning money will help boost the Taiwan dollar.”
While Taiwan’s central bank intervenes to curb any advance, the capital flows may bolster the NT dollar, which is forecast to appreciate more than the yuan after trailing for five years, surveys of analysts by Bloomberg show.
After strengthening about 20 percent from its low in 2009 through last year, the NT dollar has depreciated 2.2 percent this year, Asia’s third-worst performer after the yen and the South Korean won.
Kenda, the world’s third-largest maker of bicycle tires, and Largan, a supplier of camera lenses to Microsoft Corp and Apple Inc, are planning to build more plants in Taiwan after contributing to at least US$125 billion of investment by Taiwanese companies in China since 1991.
Corporate outflows to China fell 17 percent to US$10.9 billion last year, according to the Investment Commission.
Taiwanese firms may invest US$8 billion in the country this year, Barclays PLC estimates.
“It’s a major trend reversal,” Leong Wai Ho (梁偉豪), a senior regional economist at Barclays in Singapore, said in an interview on Tuesday last week. “This infusion of investment may reduce the drag on the financial account.”
Investment outflows from Taiwan led to a financial account deficit in seven of the past 10 years. The shortfall increased to US$11.6 billion in the fourth quarter, the most since the same period of 2011, official data show.
The NT dollar, which is down 0.7 percent in the past year to NT$29.801 on Tuesday, is expected to strengthen 2.8 percent against the US dollar to NT$29 by the end of this year, according to the median estimate of 25 analysts in a Bloomberg survey.
The yuan, which has advanced 1.5 percent to 6.2128 in Shanghai, is forecast to rise 1.5 percent to 6.12, a survey of 36 analysts shows.
While currency appreciation could help temper inflation, the central bank is capping gains in the NT dollar to protect exporters.
“Taiwan’s authorities are quite heavily intervening, therefore I don’t see the Taiwan dollar moving that much,” Tadashi Tsukaguchi, chief fund manager of the global macro hedge fund at Mizuho Securities Co in Tokyo, said in an interview on Wednesday last week.
Ma’s incentives to lure companies back to Taiwan should help boost economic growth by 0.1 percentage point this year, Leong said.
The government predicts GDP would increase 3.59 percent this year, up from 1.26 percent last year, while private investment by local companies would reach a record NT$2.3 trillion.
“We used to say that when Taiwanese companies get export orders, it creates jobs in China,” Leong said. “This will now start to change.”