The US-China trade war and the economic impact of China’s debt (at about 250 per cent of its GDP) may prompt Taiwanese companies based in industrialised, coastal China to move out to South East Asia and the US. In this context, India is also a destination.
Da-ching Yang, Senior Executive Officer, Office of Trade Negotiations, Executive Yuan, told Businessline , that Taiwanese firms are confronting higher production and management costs in China, with more regulations amid the clamping down on air pollution.
“This could prompt Taiwanese firms to move to South East Asia, the US and even the western part of China,” he said. "Many of them may not be interested in moving back to Taiwan."
Interest in India
James Hwang, Chairman of the Taiwan External Trade Development Council (TAITRA), said that the earlier focus on South East Asia would now be supplemented by an interest in India “as a constructive partner in the next 20-30 years.” He spelt out smart cities, electric vehicles and petrochemicals as areas of investment interest. “India needs a sophisticated petrochemicals industry,” James said, adding that on the Indian side, the Tatas were keen to invest in Taiwan. “Food processing industries were in discussions with TAITRA about projects in India,” James said. Citing the fact that India’s bilateral trade with Taiwan was $6.7 billion in 2017 comprising $3.3 billion exports to India and about $3 billion in imports, James said that a 15-16 per cent increase in bilateral trade was being targeted in 2018. India has received an FDI of over $5 billion from Taiwan, the bulk of it from Foxconn, an IT and electronics manufacturing company. Taiwan seeks to showcase its expertise in auto parts for electric vehicles, medical equipment and food processing in a trade expo to be held on May 17-19 in New Delhi. “An FTA with India has also been a subject of discussion,” James said.
Meanwhile, Da-Ching said that China’s debt may lead to a slow decline, rather than a crash, since it remained a state-controlled economy. As a response to this and China’s emerging policy concerns, Taiwan would focus on sectors such as green energy and recycling of industrial waste, besides its bicycles industry, he said. ICT jobs in China, he said, could be “shipped out to US and Europe.”
Taiwan is also keen to be a partner in the Trans-Pacific Partnership, “a high standard FTA with a focus on labour standards, IPRs and environmental services,”, James said.
China’s influence
China’s share in Taiwan’s exports have risen from 23 per cent in the mid-1990s and late-1990s to about 40 per cent at present. Meanwhile, China’s imports from Taiwan have fallen from 11 per cent of its total imports in 2005 to about 7 per cent now. The ASEAN market accounts for another 19 per cent of Taiwan exports. Taiwan’s exports to India have gradually increased from 0.5 per cent of its total exports in the mid-1990s to 1.2 per cent at present.
With about 80 per cent of Taiwan’s exports comprising intermediate goods, it is clear that Taiwan is increasingly locked into the manufacturing economies of China and ASEAN. In terms of product categories, the electrical machinery and equipment account for 45 per cent of total exports, while machinery, including computers make up another 10 per cent. Plastic articles and medical equipment make up another 12 per cent.
Hence, analysts fear the impact of the US-China trade war on Taiwan, a $580 billion economy, with a trade to GDP ratio of well over 100 per cent. Taiwan’s exports in 2017 were $317 billion, with imports about $60 billion less. The share of US in Taiwan’s exports has fallen from 24 per cent in the mid-1990s to 12 per cent at present. The share of the EU in Taiwan’s exports has fallen from 15 per cent to 10 per cent at present over about two decades. In terms of both product mix and export destinations, Taiwan’s options are not diversified. Recognising the risks, the New Southbound Policy, announced by the Democratic Progressive Party which came to power in 2016, “is conducive to Taiwan’s integration into the South and Southeast Asian region, as well as Australia and New Zealand...” Taiwan is keen to promote scholarship programmes for Indian students, Hwang said.
Da-ching said that stagnating wages and inequalities were issues in Taiwan, more so in the context of the uncertain export environment.
The DPP rode to power on fears arising out of the Economic Cooperation Framework Agreement with China.
The writer was recently in Taiwan at the invitation of the Taiwan External Trade Development Council