Taiwan-based sports accessories and luxury bags manufacturer WW Holding Inc on Wednesday said it plans to expand into Southeast Asia and reduce its reliance on the Chinese market.
WW shares on Wednesday rose 2.64 percent to close at NT$74 in Taipei trading following the announcement.
The move, due largely to soaring labor costs in China, is part of a growing trend among international companies. Major US-based disk-drive manufacturer Seagate in January closed its Suzhou factory, resulting in 2,000 lost jobs. In 2015, Japanese electronics manufacturer Panasonic, which had been operating in China for 37 years, stopped building televisions in the country, and in November last year Sony sold all of its shares in a Guangzhou-based factory.
“China doesn’t need foreign companies so badly now in terms of acquiring advanced technology and capital as in previous years,” CNBC quoted Chinese University of Hong Kong professor Chong Tai-Leung (莊太量) as saying on Feb. 2.
The Cabinet’s New Southbound Policy is in line with global trends.
Inconsistent interpretation of laws, the introduction of new regulations — such as China’s cybersecurity law introduced on June 1, which requires network operators to store data on Chinese servers — and fierce competition from domestic companies mean that China is becoming a hostile environment for international investors, CNBC said.
Chinese companies are leaving the local market too. The South China Morning Post in December last year reported that China’s overseas investment for the year was up 50 percent from 2015, whereas Chinese investment in the domestic market grew only 3.1 percent.
Strict laws and rising operating costs are not the only obstacles driving Chinese investors out.
Poor demand and low household incomes are among the major factors driving Chinese businesses out, the paper quoted University of Hong Kong professor Xu Chenggang (許成綱) as saying.
Even when demand exists, strict regulations and policies favorable to Chinese companies are limiting foreign access to the Chinese market. Last year the Chinese government shut down two of Apple’s key services: iBooks and iTunes Movies, which along with Apple Pay and Apple Music are important revenue generators for Apple and central to its mobile functionality and Apple TV platform.
Technology companies are also forced to transfer proprietary technologies to enter joint ventures and in some cases face piracy and patent violations.
“The Chinese government, of course, has aided this process by systematically discriminating against foreign companies, enforcing laws and regulations with regard to multinationals while looking the other way when a domestic company commits a violation,” the New York Post wrote in May last year.
The Chinese government is aware of the need to transition from manufacturing and has implemented a number of strategies. One approach has been to offer incentives to companies who move operations inland, where wages are as much as 30 percent lower than in coastal cities. Beijing is encouraging Chinese companies to invest in automation and to develop high-value products. It also offers rent and power subsidies to textile companies who move to western China’s Xinjiang Province — a cotton-growing region.
However, many question China’s ability to successfully transition from labor-intensive manufacturing, saying that it still lags behind in innovation and cannot move up the value chain as fast as Japan did when it threatened US dominance in the 1980s.
For foreign and Chinese companies alike, China is becoming an unattractive place to sell or manufacture products. Taiwan’s best option is the New Southbound Policy, as well as strengthened ties with the US and Japan.
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