Taiwan’s business community is taking steps to shift investments, trade, and procurement away from mainland China towards Southeast Asia and South Asia, following the footsteps of multinational corporations from the United States, Europe, and Japan. Some Taiwanese investments are even flowing towards the United States. With China’s economy weakening, facing the prospect of losing decades-long investments and support from Taiwan, the situation further complicates China’s stance towards Taiwan.
The reasons behind multinational corporations distancing themselves from China are largely similar. China’s once-low cost advantage in manufacturing has diminished, disruptions in supply chains during the pandemic, and Beijing’s prolonged “zero-COVID” policy have significantly impacted foreign companies’ confidence in China. Meanwhile, Beijing’s recent obsession with “national security” has led the Chinese government to impose stricter scrutiny on private enterprises than ever before. The diminishing attractiveness and increased government mandates have tilted the balance against China in the decisions of multinational corporations.
Although mainland China remains Taiwan’s largest trading partner, its share in Taiwan’s trade has been steadily declining since 2021. In 2021, the trade volume between mainland China and Taiwan was equivalent to $208.4 billion, accounting for about a quarter of Taiwan’s total foreign trade. By 2023, this number had dropped by nearly 20% to around $166 billion, only representing over one-fifth of the total trade volume. In contrast, Taiwan’s trade with Southeast Asia increased from $117.5 billion in 2021 to $134.6 billion in 2022, growing by nearly 10% in just one year.
Taiwan’s export dependency on China has also decreased. The latest data, including Hong Kong, shows that this dependency is at its lowest since 2018, with a significant portion shifting towards Southeast Asian countries.
What worries Beijing the most is the sharp shift in Taiwan investment funds. Since 2010, Taiwan’s corporate investments in China have been declining. In 2023, this number decreased by nearly 40% compared to the previous year. The inflow last year amounted to $4.17 billion, less than a third of the 2018 level. The difference in inflow and more funds going towards Southeast Asia, especially to Vietnam, Indonesia, Malaysia, and Thailand, has resulted in these countries now receiving about 40% of Taiwan’s outward investments, compared to China. Within a few years, Taiwanese investments in Vietnam have quadrupled, especially in the high-tech electronics sector where companies like Foxconn, Wistron, Pegatron, and Quanta Computer plan to expand their operations in Vietnam.
Pingtan Island in Fujian Province is the closest point on the mainland to Taiwan. To attract Taiwanese investment, the island offers tax breaks, subsidies, and assistance with residency to Taiwanese investors. “Taiwan City” shopping center was built specifically to attract Taiwanese businesses. A report by the Financial Times on June 30th noted the empty nature of the shopping center, with only a few tourists taking pictures with statues adorned in traditional Taiwanese attire.
Last year, Taiwanese investment in Fujian decreased by 80% compared to the previous year, reaching only $220 million, marking a new low in 22 years. Trade has also been affected, with imports from Taiwan to Fujian Province dropping by 10.2% last year, while exports decreased by 15.6%.
Meanwhile, Taiwanese businesses cite rising production costs, trade tensions, and geopolitical risks as reasons for shifting their focus to other hubs. “Regardless of how China (CCP) markets this economic zone… Taiwanese businesses seem to have low acceptance,” said Chun-Yi Lee, Director of the Taiwan Studies Project at the University of Nottingham, to the Financial Times.
She added that companies are concerned about rising labor costs, competition with local firms, and the impact of the US-China trade war.
The exodus of Taiwanese businesses not only impacts the Chinese economy but also serves as a deterrent to Beijing’s intention of forcibly unifying Taiwan. Forbes stated that the more Taiwan’s trade and investment grow in Southeast Asia and South Asia, the greater the interests these Asian countries have in Taiwan, making it more likely for them to resist any destructive actions by China. While these countries may not resort to military force to counter China’s repeated threats to take over Taiwan, the broader group of nations’ interests have put Beijing in a more awkward position regarding Taiwan.