The percentage of Taiwanese businesses investing in China has been steadily declining since 2010 due to increased costs, the US-China trade war and the slowdown of China’s economic development, Straits Exchange Foundation (SEF) spokesperson Li Pao-wen (黎寶文) said.
In terms of Taiwan’s total outward investment, the percentage of businesses investing in China has dropped from 83.8 percent in 2010 to 11.4 percent in 2023, 7.5 percent last year and 2.7 percent in the first quarter of this year, Li said in an exclusive interview with Liberty Times, the Taipei Times’ sister paper.
Li said that 70 percent of these businesses experienced a drop in profits last year, and this trend is unlikely to change in the short term.
Photo: Chen Yu-fu, Taipei Times
While the decline in Taiwanese investment in China has mostly been attributed to the New Southbound Policy, this is not actually the case, he said.
Taiwanese investment in regions other than China has been increasing since 2012, before the New Southbound Policy, he added.
Many Taiwanese businesses in 2010 began to feel the impact of China’s investment environment on their profits and started to make changes, he said.
Although the proportion of Taiwanese investments in China exceeded 50 percent in 2012, investment in other regions also reached 40 percent that year, up from 22 percent in 2011, Li said.
This means that Taiwanese investment worldwide increased by 10 percent in a single year, a substantial surge, all before the New Southbound Policy, he said.
Taiwanese businesses began to realize that expenses related to investing in China were rising as its economy developed, Li said.
Labor, environmental and regulation compliance costs were rising, especially in coastal cities, so the advantages of investing in those areas no longer existed, he said.
China has also been bolstering domestic manufacturing, launching the “made in China” initiative with the goal of becoming a major manufacturing power within 10 years, which has created competition for Taiwanese businesses, Li said, adding that combined with the rising costs, Taiwanese businesses began expanding their investments to other countries.
When US President Donald Trump first took office in 2016, the US stopped viewing China as a strategic partner, and launched a trade and tariff war, which increased the risks faced by Taiwanese investing in China, he said.
Previously, products were ordered from Taiwan, produced in China then sold to the US, Li said.
However, as US-China relations worsened, Taiwanese businesses had to find other production sites, he said.
The government noticed this trend and encouraged businesses to return their investments to Taiwan, he added.
“The proportion of Taiwanese businesses investing in China was 7.5 percent last year, reflecting a long-term trend of decline, and it might be even lower this year,” Li said.
The slowdown of China’s economic growth is a disadvantage to Taiwanese businesses, he added.
China recently launched phase two of its “Fuzhou-Matsu integrated living zone” policy, offering incentives for Taiwanese businesses, including Regional Comprehensive Economic Partnership (RCEP) certificates for products exported to Southeast Asia to qualify for lower tariffs.
That blurs the line between “non-red” and “red” supply chains, Li said, adding that issuing RCEP certificates to Taiwanese businesses raises concerns about “origin laundering.”
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