Japanese companies are expected to continue increasing investment in Taiwan to enhance their competitiveness and open doors to more opportunities in China, Bank of America Merrill Lynch (BofA Merrill Lynch) said yesterday.
In the first nine months of the year, Japan’s outward investment to Taiwan increased by 180 percent from a year earlier to US$284.6 million, with 53 percent going to the manufacturing sector and 30 percent injected into the wholesale and retail trade sectors.
From January to September, Taiwan approved 476 Japanese investment deals, already exceeding the 393 approved Japanese projects averaged per year over the past five years, according to Ministry of Economic Affairs data.
“This indicates increasing business exchanges between Taiwan and Japan, and is a bright spot following the recent gloomy macro data from Taiwan’s domestic economy,” Hong Kong-based BofA Merrill Lynch economist Marcella Chow (周奐彤) said.
“We forecast this trend to continue in the next two to three years, and to even increase if Taiwan’s political gridlock is finally solved,” she wrote in a note to clients.
Taiwan has been very keen to develop deeper industrial cooperation with Japan, as the easing or elimination of restrictions could foster ties that integrate key Japanese technologies and Taiwan’s production capabilities, Chow said.
Japanese companies possess important technology, but they are not good at bringing down production costs, she said.
Their business ties in China are tenuous amid ongoing tensions between China and Japan over the Diaoyutai Islands (釣魚台), she added.
As a result, many Japanese companies have reconsidered plans to invest in production facilities in China, evidenced by a 32.3 percent annual decline in their direct investment into China during the first nine months of the year, Chow said.
“It makes sense for Taiwanese and Japanese companies to form partnerships, especially to counterbalance [South] Korea’s increasing economic dominance and increase competitiveness versus [South] Korea,” she said.
However, Chow said that Taiwan is not necessarily the first choice for Japanese businesses, with India and ASEAN memberstates also actively looking to develop closer trade ties with Japan.