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Taiwan's Economy Shifts Towards Southeast Asia
Photographer: Billy H.C. Kwok/Bloomberg
November 22nd, 2016 | 08:44 AM | 720 views
TAIWAN
Taiwan’s new president is leading a charge to boost economic ties with Southeast Asia, and away from mainland China. The reality is that the shift is already well underway.
In a case of economics moving faster than politics, foreign direct investment by Taiwanese companies into the six largest Southeast Asian economies doubled in the past five years, according to Singapore-based DBS Group Holdings Ltd. That’s even before the government began pushing its “New Southbound” initiative to target markets in the Association of Southeast Asian Nations as companies face declining returns in mainland China.
In contrast to China’s slowing economy and rising wages, Southeast Asian nations like the Philippines and Vietnam are among the fastest-growing in the world and are benefiting from a burgeoning population. There’s still plenty of room for Taiwanese FDI to expand further in the region, according to Ma Tieying, an economist at DBS in Singapore.
“China’s slowdown, rebalancing and rising wages are prompting Taiwanese firms to adjust overseas strategies,” Ma said. “Asean markets are attractive, thanks to strong growth, low-cost labor, and ongoing reforms and economic integration.”
Taiwan’s government has assigned a NT$4.2 billion ($131 million) budget to the New Southbound initiative in 2017, which includes spending on the launch of trade offices in several countries, talent exchanges, tourism and scholarships for foreign students.
Taiwanese President Tsai Ing-wen took office in May with a pledge to reduce Taiwan’s economic reliance on mainland China, which hosts factories that make iPhones for Hon Hai Precision Industry Co. and uses chips from Taiwan Semiconductor Manufacturing Co. About 40 percent of all Taiwanese exports go to China, a proportion that authorities are keen to lower.
China has pledged to retake Taiwan, by force if necessary, and opposes international recognition of the territory.
China’s Dominance
Politically, Tsai’s New Southbound initiative must overcome the shortcomings of similar Asean-outreach efforts under predecessors such as Chen Shui-bian, including building official ties with Southeast Asian nations and contending with China’s trade dominance in the region.
Economically, the benefits are already obvious, especially for companies that produce cheap manufactured goods: China had an average monthly wage of $613 in 2014, according to the most recent data from the International Labour Organization, compared with $215 in the Philippines, $197 in Vietnam and $183 in Indonesia.
Pou Chen Corp, Taiwan’s largest manufacturer of athletic shoes such as Nike, Puma and Adidas brands, is a clear example of this trend, said Raymond Yeung, an Australia & New Zealand Banking Group Ltd. economist in Hong Kong. The company expanded production in mainland China in the late 1980s, and has been boosting output in factories in Vietnam and Indonesia in recent years.
“In politics, this looks like a new strategy, but in economics it’s an existing reality. Taiwan is a fairly good sub-contractor,” Yeung said. “Every country in Southeast Asia is a possible target. To Taiwan corporations, the number one factor is cost and the number two is stability. Taiwanese tend to be in the middle of the supply chain, they are very good at managing the manufacturing process.”
Over time, Taiwanese companies have developed ways to avoid mainland Chinese political pressure and work in countries that have no diplomatic ties with Taiwan, often through listing operations in Hong Kong as Pou Chen did.
Governments in Southeast Asia have had to contend with some drawbacks from the pick-up in foreign investment. In a much-publicized case, Taipei-based Formosa Plastics Corp. said in June that toxic discharges by its Vietnam unit were responsible for the deaths of millions of fish along Vietnam’s central coast.
Agreeing to pay $500 million in compensation, Formosa accepted full responsibility for the fish deaths, and a top official asked the Vietnamese people for forgiveness in a video recording that was televised nationally. Formosa also pledged not to repeat such violations.
“Formosa seems to be a one-off issue,” said Tony Nash, Singapore-based chief economist at Complete Intelligence, which advises companies and institutions on Asia. “Taiwanese companies have worked very hard to build trusted relationships in overseas markets.”
Source:
courtesy of BLOOMBERG
by David Roman
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