Government report shows companies moving to China

An increasing number of Tai-wanese companies are moving production abroad because of the worsening investment climate at home, according to an official report published yesterday.

Between September 1996 to December 2001, Taiwan companies that "receive foreign orders in Taiwan but make the products abroad" rose from 16.6 percent to 22.5 percent of Taiwan's firms, a Ministry of Economic Affairs report said.

Taiwan's domestic investment, which rose 11.3 annually from 1997 to 2000, fell 23.8 percent last year. "During last year alone, overseas production rose from 18 percent in January to 22.5 percent in December," the report said.

Since the late 1980s, Taiwan companies have been moving production to China and South-east Asia, lured by cheap labour and raw materials.

"The move is in line with the international trend of division of labour," the report said. "A certain amount of overseas production is good because it makes Taiwanese products more competitive."

Despite the government's persistent pleas to Taiwanese industries to stay at home, the entry of both Taiwan and China into the World Trade Organization will likely increase the pace of relocations across the strait by industries such as high-tech, textiles and retailing sectors.

According to Martin Hirt, managing partner of McKinsey and Co's Taiwan office, "WTO accession will allow many Taiwanese suppliers of these goods to lower costs by accelerating the shift of production facilities to China and create and integrated Greater China value chain." Hirt made the remarks recently when delivering a report to the European Chamber of Commerce Taipei on the impact of WTO entry.

The China market has looked increasingly attractive in the last two years as political instability, coupled with the worst recession in decades, has darkened the domestic investment scenario. "It hurts Taiwan's economy because US$2 billion [of production] has gone abroad," the report said.

The percentage of production moved abroad is 40 percent in the shoe, hat and furniture industry, 39.5 percent in the information industry, 32.1 percent in the machinery industry and 16.9 percent in the electronic-products industry, it said.