The global COVID-19 pandemic is likely to lead businesses to shift their supply chains out of mainland China in an effort to diversity risk, American Chamber of Commerce in Taipei President William Foreman said in an interview.
“I believe the coronavirus outbreak will further accelerate the shift of supply chains out of China,” Foreman said by email. “The pandemic will be yet another reason why it’s risky to rely too much on one country or market.”
Even before the coronavirus outbreak, Taiwan companies were moving some investments from mainland China back home amid trade tensions between the U.S. and China – “mostly ones making high-end products,” Foreman said.
That trend seems to be born out in Taiwan government data showing that some 178 companies have been approved for an “action plan” launched last year to encourage businesses with overseas projects to invest back at home. “All these investments projects have committed to investing a combined $24.2 billion and creating 60,049 jobs,” according to the Ministry of Economic Affairs. That response is also in line with a steady decline in Taiwan approvals for mainland investment projects. Approvals fell by more than half last year to $4.1 billion from $8.5 billion in 2018. The figured peaked in 2010 at $14.6 billion. Besides tension with the U.S., China’s investment climate become less appealing for some manufacturers due to rising costs.
Among the businesses listed as participating in the government action plan are electronics industry leaders Taiwan Semiconductor Manufacturing, or TSMC, Quanta, Yageo, AU Optronics, and Accton.
Foreman noted that 47% of CEO respondents in Amcham’s annual Business Climate Survey released in February said that the economic impact of Sino-U.S. trade tensions on Taiwan has been positive. Yet only about 11% of Amcham Taiwan CEOs said that their own companies have redirected business from mainland China to Taiwan since the trade tensions began, suggesting the impact among Taiwan’s own companies might be larger.
As for multinationals, Foreman said, “The most exciting trend I’ve noticed involves the increasing number of companies that are viewing Taiwan to be an excellent base to do research and development. Taiwan has top-notch talent, an excellent tech ecosystem, loyal workforce, relatively low salaries and a legal system that has made great progress in protecting intellectual property. The challenge for Taiwan’s government will be to shift its focus away from creating overly restrictive labor laws that inhibit innovation and instead do more to promote talent and career development.”
Among overseas businesses increasing their investment in Taiwan, Microsoft last year said it was expanding an AI research center (see link here).
Though the virus outbreak will hurt China’s economic growth this year, the mainland remains attractive for many overseas businesses owing to its large consumer market and pools of talent and capital. High-profile foreign investment projects announced in the past year there include an incubator by Johnson & Johnson.