Last week, the Ministry of Economic Affairs said that 20 Taiwanese businesses intend to move their manufacturing operations from China to Taiwan as the trade war between Washington and Beijing intensifies.
According to a ministry survey, electronics and bicycle manufacturers are most likely to relocate their operations, as many still have production facilities in Taiwan, while textile companies are expected to increase production in Southeast Asia, where many of them have had factories for decades.
Taiwanese investors increased the pace of repatriating earnings from China before Beijing implemented the Common Reporting Standard early this month. As of June 30, total earnings repatriated by listed companies reached a record high of NT$422.6 billion (US$13.74 billion), or 17.73 percent of their accumulated investments in China, the Financial Supervisory Commission reported last week, adding that electronic components and rubber companies repatriated the most funds.
Economists have said that businesses and capital have left China over the past few years not only from the weakening Chinese yuan against the US dollar and the trade dispute, but also because of China’s challenging business environment and its rising labor and tax costs.
US-China trade tensions might cause rush orders to be diverted from China to Taiwan over the short term, but the business community needs long-term solutions to avoid the negative fallout of tariffs on Chinese supply chains.
The question is whether the government will stand behind its “welcome home” policy by resolving the “five industrial shortages”: land, water, electricity, talent and workers, although these difficulties have been around for a long time and no quick fixes are expected.
For example, increasing the number of foreign workers in local industries is a thorny issue for the government, the business community, unions and labor groups, while ensuring a stable supply of electricity remains a balancing act as the government seeks to eliminate nuclear power and lower pollution while scrambling to increase sources of renewable energy and maintain enough supply to cover peak demand.
Businesses will not move all of their Chinese operations back, because Taiwan has strict environmental regulations and higher land, labor and operating costs.
For companies to benefit, a return to Taiwan must entail a move up the global supply chain and an improvement to their production capability.
The government should take this opportunity to improve the nation’s research and development environment and transform its economic and industrial structure. Only innovation and upgraded technology will ensure the long-term growth of Taiwanese businesses.
If businesses leaving China do not return to Taiwan, where can they go? Although the government has implemented the New Southbound Policy, more time is needed before regional infrastructure is in place, workers’ skills are improved and investment protection agreements are finalized.
Taiwanese banks saw earnings from overseas branches rise 17.4 percent annually to NT$31.7 billion in the first half of the year, but branches in the 18 countries targeted by the New Southbound Policy only contributed NT$3.8 billion in earnings, or 11.99 percent of the total, FSC statistics showed.
Bank branches in Southeast Asian countries remain at an early stage of development, with ample growth to accomplish before they play a critical role in capital management for Taiwanese businesses.
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