13 March 2019
Five Domestic Shortages Threaten to Derail US-China Tariff Dispute-Driven Repatriation of NT$15 trillion of Overseas Taiwanese Investment
Although already suffering from the fallout from the protracted US-China trade war, acute shortages of land, power, water, premium talent and manpower are currently deterring many overseas-operating Taiwanese businesses from heading home.
For more than 30 years, mainland China has been the first choice for a substantial number of Taiwanese businesses when they looked to establish cost-effective production facilities. Now, however, in light of the punitive tariffs imposed on goods of mainland-origin by the US, it is a decision that has come back to haunt many such companies.
With the first wave of tariffs having now been in effect for nine months, many Taiwanese businesses have already found themselves caught in the crossfire. This has increasingly led them to consider switching their production focus and reinvesting within Taiwan itself. At the forefront of such moves have been businesses engaged in the electronics, machinery and manufacturing sectors, the industries hit hardest by the tariffs. As a sign of the significance of such a change in strategy, the General Chamber of Commerce of Taiwan estimates the funds held overseas by Taiwan businesses amount to about NT$15 trillion (US$486 billion).
While the Taiwanese authorities have been keen to encourage domestic reinvestment on the part of the business community, five key obstacles need to be overcome to fully facilitate this. Billed locally as the Five Shortages, the primary stumbling blocks are seen as Taiwan's relative scarcity of land, water, power, talent and manpower. In order to address these particular problems, the Executive Yuan has established the Acceleration of Investment in Taiwan Project, a dedicated government / industry think tank.
This follows the earlier establishment of the InvesTaiwan Service Center (in July 2018), which brought together the various agencies charged with channelling overseas-resident funding back to Taiwan. On 22 February this year, the Center held its seventh review of the Action Plan for Welcoming Taiwanese Firms Back to Taiwan for Investment. This saw it approve investment proposals from CoreMax, ChinaPlas and the Taiwan Union Technology Corporation, which are, together, expected to account for more than NT$6.7 billion in investment returning to Taiwan, a development that could create 200 local jobs.
All the approved proposals come from established Taiwan-headquartered manufacturing businesses. For its part, CoreMax, a major producer of lithium-ion batteries and specialty chemicals, is looking to invest NT$2 billion in establishing new production facilities in two Taiwanese counties, Hsinchu and Miaoli.
With an investment strategy valued at NT$1.2 billion, ChinaPlas is Taiwan's largest manufacturer of bottle-blowing machines for PET bottles. Under the terms of its approved proposal, it will expand its current Taiwan-sited whole-process production facilities by constructing a new precision parts and components smart manufacturing plant within Central Taiwan Science Park's Erlin Park development.
In the case of Taiwan Union Technology, one of the territory's four largest copper-clad laminate manufacturers, its agreed level of reinvestment of NT$3.5 billion has been earmarked for a major land purchase in Hsinchu, which will be the site for a new state-of-the art production facility.
To date, InvesTaiwan has reviewed the proposals of 12 companies, with some NT$32.3 billion of investments given the green light, which is expected to lead to the creation of 3,900 new jobs. Of these companies, six are in the electronics sector, a clear indication as to just which industry is most concerned about the likely impact of the China-US trade dispute.
In terms of the scale of the various investments, Taoyuan City-headquartered Quanta Computer, the world's biggest OEM supplier of personal computers, has the largest agreed spend (NT$4.2 billion) with second place jointly held by non-woven fabric manufacturer Nanliu Enterprise and Taiwan Union Technology (both at NT$3.5 billion).
Apart from the size of the agreed reinvestment, a further key consideration – bearing in mind the issues highlighted by the Five Shortages – is just where in Taiwan any such spend should be directed, with the scarcity of industrial land proving to be a real headache for reshoring-minded businesses.
Despite suffering from the most pronounced land shortages, northern Taiwan – the region around Taipei, the territory's capital – has proved the most popular option. According to the latest official figures, Taoyuan and Hsinchu (both in the north) will each be home to three projects, accounting for more than half of the total agreed spend. By contrast, Central Taiwan will have four (with a relatively lower combined spend), while Kaohsiung (in the south) will have just one.
As another sign of the critical nature of the land-use problem, space is said to be increasingly tight in the territory's six leading science parks. In fact, both the Hsinchu Science Park and Jhunan Science Park are now fully occupied, with the Longtan Science Park expected soon to be in the same situation.
To help ameliorate the problem, the Taiwanese government has prioritised the adoption of three particular strategies – renting out public land at a discount, incentivising owners to release unused private land and reforming existing industrial land use development programmes. These three initiatives are expected to lead to 1,470 hectares of land being released for industrial use by 2022.
In terms of immediate availability, according to the Ministry of Economic Affairs, 435 hectares of industrial land is now ready for occupancy, with a further 873 hectares to be added within three years. In an additional move, it is also offering two rent-free years to any business willing to sign a lease relating to space within one of the territory's industrial development zones.
While some progress is seen as being made towards remedying the restricted land availability, power – another of the designated Five Shortages – remains a major challenge. Exacerbating the problem is the fact that the domestic nuclear power facilities are gradually being phased out in line with the long-term commitment to making the territory nuclear-free. There are, however, signs that the shutdown programme might be reviewed and subsequently rescheduled in light of concerns that the alternative energy sources required to fill the gap are not yet in place.
Official government strategy is to increase the capacity of the territory's gas-fired generators to 8.896 million kilowatts and that of its coal-fired generators to 1 million kilowatts by 2025. It is hoped that the share of energy derived from renewable sources will rise to 20% by the same date.
In addition to the Five Shortages, many Taiwanese businesses are also concerned about how much tax will be payable on any repatriated funds. In order to provide a degree of reassurance in this regard, however, the Ministry of Finance is said to be formulating a special law relating to the repatriation of overseas funds and will be setting a concessionary tax rate that will apply to all such local reinvestment.
Robert Kang, Special Correspondent, Taipei