It turns out that Taiwan is following the same path as American, European, and Japanese corporations. For the same reasons, the island’s strong business network has taken steps to diversify its investments, industries, and materials away from China and into Southeast and South Asia. Some Taiwanese investments have even gone to the United States. Beijing cannot rejoice in such trends. With China’s economy already weak, this is the worst time to lose what Taiwanese corporations have been giving them for decades.
Diplomatic considerations have led Taiwan to be more discreet than others in this change. Unlike Washington, Taipei has not shown any open hostility toward China. Unlike Washington and Brussels, Taipei has not announced any new price lists for Chinese goods or any official blocking of certain investment flows. But the anti-China movements of the business community, such as those in the United States, Europe, and Japan, are unmistakable.
The economic reasons that push these economies to reject China are practically the same. Developed economies around the world have for decades viewed China as an attractive location for sourcing, operations and investment. Production prices were reasonable and Chinese operations reliable. The needs of foreigners are greater than ever in world trade, but low prices and maximum reliability have more than offset Beijing’s needs. Trade and investment have flourished. However, in recent years, this balance has changed dramatically.
Chinese wages have risen rapidly, faster than in the rest of the world, especially in other parts of Asia. Therefore, China’s previous merit has been affected. Although the recent depreciation of the yuan has restored some of this merit, corporations in the rest of the global world recognize the variability of financial values and do not necessarily take it into account in their decisions in the long run. As for China’s longstanding reputation for reliability, shipping disruptions, the pandemic, and Beijing’s long era of zero-Covid policy have gone a long way toward erasing this once-all-important appeal. At the same time, Beijing’s recent obsession with security has made official China more intrusive than ever. The combination of fewer attractions and more taxes has tipped the scales in China’s favor for corporations on every continent.
The symptoms of these decisions by the Taiwanese industry are quite transparent. Although China remains Taiwan’s largest trading partner, its share of Taiwanese industry has declined since 2021. That year, Chinese sales to Taiwan and Chinese purchases from Taiwanese manufacturers amounted to the equivalent of $208. 4 billion. or about a quarter of Taiwanese industry as a whole. By 2023, the last era for which full knowledge exists, this amount had fallen by about 20% to around $166 billion, just over a fifth of the total. Southeast Asia’s industry increased from $117. 5 billion in 2021 to $134. 6 billion in 2022, an impressive increase of nearly 10% in a single year. Taiwan’s dependence on China for exports has also declined. Even adding Hong Kong, recent figures show that it is lower than at any time since 2018. Most of the difference went to Southeast Asia.
The dramatic reorientation of Taiwanese investment is even more worrying for Beijing. Investment flows from the island’s corporations to China have been declining since 2010. In 2023, they fell to a maximum of 40% compared to last year. The equivalent of $4. 17 billion last year was less than a third of the 2018 level. The difference in flows, and much more, went to Southeast Asia, adding Singapore, Vietnam, Indonesia, Malaysia and Thailand. These countries now get about 40% of Taiwan’s investment flows. Investments in Vietnam have quadrupled in just a few years, especially in the most expensive area for Beijing’s planners, high-tech electronics. Taiwanese tech corporations Foxconn, Wistron, Pegatron and Quanta are all making plans to expand their presence in Vietnam.
Beijing may not like those economic realities, but the security implications of this Taiwanese shift are equally troubling. The more Taiwanese industry and investment develops in Southeast and South Asia, the more interests the Asian network of nations has in Taiwan and the more likely it is to resist any Chinese attempt to disrupt things. No one pretends that those nations have the military strength to counter repeated threats of Chinese takeover of Taiwan, but the interest of a broader organization of nations makes Beijing’s position on Taiwan even more sensitive.
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