Wed, Nov 28, 2018 - Page 13 News List

Taiwan’s underdog city is reborn in China US trade spat

As tensions escalate, Taiwan’s biggest tech firms are moving production back to Taoyuan

By Debby Wu  /  Bloomberg, Taipei

In January, the verdant Provincial Highway 7 provides a scenic route through Taoyuan and Yilan.

Photo: CNA

One of the biggest beneficiaries of the clash between the US and China may turn out to be a gritty Taiwanese town called Taoyuan.

The former Japanese enclave west of Taipei had long suffered as local companies shifted factories to China to benefit from lower wages and globalizing trade. But with tensions escalating between the world’s two largest economies, Taiwan’s biggest tech firms are now moving some production back home and out of the path of mounting tariffs. Many are turning to this city of two million on the northwestern coast.

Taoyuan doesn’t offer much in the way of glitz. But it does boast an hour’s drive to Taipei, hosts Taiwan’s primary international airport and overseers who are aggressive supporters. That’s why it’s a hot destination as the manufacturing powerhouses behind the world’s electronics scour the globe for alternatives. The moves threaten to splinter a decades-old supply chain, in which Taiwanese giants assemble devices out of sprawling Chinese bases that the likes of HP and Dell then slap their labels on.

From iPhone assembler Pegatron to laptop maker Compal Electronics, they’re now preparing for an end to an arrangement that’s served them well since the 1980s. Along with fellow Apple-supplier Inventec, the trio are among those adding capacity in Taoyuan, with announcements coming as Washington and Beijing ramp up the rhetoric over trade and tariffs. Others like Quanta Computer are snapping up or seeking factory land. The city’s population is now the fastest-growing in the country even as US-Chinese tensions dampen the global economy.

“Our operation model will see a major change from the past two decades,” Pegatron Chief Financial Officer Charles Lin (林秋炭) told analysts at an earnings call on Nov. 8. “In the future, production will be spread out in different countries and we will not be able to build mega-plants in other places like those in China.”

It’s a homecoming of sorts for Pegatron and its compatriots. Thirty years ago, many based in Taoyuan and elsewhere in the country decamped for China’s lower costs, helping create the world’s factory floor. While Taiwanese government data shows investments in China peaked around 2010, they remain a formidable presence. Fifteen of the top 20 exporters from China to the US in 2016 originated in Taiwan, according to a Chinese state-run customs data Web site.

Now, Donald Trump’s tariffs threaten to compress already razor-thin margins. Higher wages will make it more expensive to produce in Taiwan, as will losing the efficiency gained by having the supply chain located close together in China.

“With tariffs expected to rise to 25 percent, it will push Taiwanese companies to expedite their plans to go home or build operations in a new location,” said Angela Hsieh (謝涵涵), an economist at Barclays. “Yet there are still a lot of uncertainties surrounding a trade war, so companies tend to first add capacities in their existing facilities in Taiwan instead of spending a lot to build new plants.”

That’s where Taoyuan comes in. While some of Taiwan’s corporations are considering migrating as far afield as Southeast Asia, others prefer to move closer to home bases. The country’s administration — sensing an opportunity — is cobbling together incentives such as tax holidays to entice their corporate citizens back into the fold.

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