Why you should care
Because Taiwan already had enough to worry about with an assertive China and the trade war between Beijing and Washington.
Growth in Taiwan has slowed to its worst level in almost three years, in the latest sign of fallout from a deepening slowdown plaguing the electronics sector, amid the U.S.-China trade war.
Gross domestic product growth, year over year, was 1.72 percent in the first quarter, according to a preliminary reading released last Tuesday, down from 3.15 percent in the first three months of 2018 and the slowest since the second quarter of 2016. Taiwan’s exports, which account for nearly three-quarters of GDP, have this year been hit by a sharp fall in demand for electronic components such as computer chips amid weaker device sales and slower global economic growth. Sentiment has been further dented by the trade dispute between the world’s two biggest economies.
We are currently … providing more incentives for the Taiwanese firms to come back.
Shen Jong-chin, Taiwan’s economics minister
Shen Jong-chin, Taiwan’s economics minister, says the government in Taipei was hoping for a buffer from a wave of Taiwan-owned businesses with operations in China shifting production capacity back to the island to avoid higher potential tariffs being imposed by Washington on Chinese exports.
“We are currently taking advantage of this trend … providing more incentives for the Taiwanese firms to come back,” Shen says.
Forty such companies, including electronics groups Quanta Computer, Sercomm and Wistron, are expanding production in Taiwan, creating more than 21,000 jobs with investments totaling $6.7 billion, according to a government document accessed by this reporter.
Several large companies, including chipmakers, were not named because of sensitivity over the issue and a further 70 companies are considering a similar move, officials say.
To boost growth, Shen adds, the government is working to address the land, water and energy shortages that have curbed industrial development for years. He says officials are planning new tax breaks for companies investing in manufacturing and research and development in Taiwan.
However, analysts are not convinced the repatriation trend will offset the broader market downturn faced by Taiwan’s electronics manufacturers, whose products account for more than two-thirds of the goods the country exports.
Iris Pang, an economist at ING, does not expect to see a recovery in Taiwan’s electronics exports this quarter and says even a second-half rebound, expected by some companies and analysts in the sector, remains “uncertain.”
“There will be some companies moving back to Taiwan [from China], but the scale will not be large enough to move the GDP needle a lot,” Pang says.
As countries and companies grapple with the uncertain outlook caused by the trade dispute, top U.S. and Chinese trade officials are meeting in Beijing and Washington over the coming days in a bid to end the impasse.
But Xu Xiao Chun, an economist at Moody’s, says the trade war has already had “real effects” on consumer and investor confidence across Asia, which is feeding back to the region’s economy and denting trade and investment plans.
Taiwanese companies might continue to move operations out of China “not just due to the trade war but also due to other factors like rising wages and government regulation, [but] there will be significant lags until the benefits are reaped,” Xu says.
Xu adds that the weaker economic performances in South Korea, Japan and Singapore indicated that the downward trajectory for electronics manufacturers is likely to persist through the second quarter.
The pain has also started to show in earnings across the tech supply chain. South Korean tech giant Samsung Electronics and Taiwan Semiconductor Manufacturing Co., the world’s biggest contract chipmaker and supplier of key processor chips to Apple, are among companies that this month have reported steep declines in first-quarter earnings on the back of double-digit sales falls.
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