Taiwan appears to have made the decision to follow the path of American, European, and Japanese companies. For the same reasons, Taiwan’s robust business community has taken measures to redirect its investments, trade, and procurement away from the Chinese Communist Party towards Southeast and South Asia. Some Taiwanese investments have even flowed to the United States. Beijing is displeased with these trends. As the Chinese economy weakens, just when it needs the support that Taiwan companies have been providing for decades, this support is gradually disappearing.
In this move, Taiwan has been more low-key compared to other countries. Unlike the United States, the European Union, and Japan, Taiwan has been discreet in rejecting Chinese Communist companies out of diplomatic and geopolitical considerations. Washington’s hostility towards the Chinese Communist Party is very apparent compared to Taipei’s approach. The U.S. restricts certain types of trade with China, prohibits technology investments under Chinese Communist rule, and has increased tariffs on Chinese goods entering the U.S. The EU has also taken a clear stance, recently imposing tariffs on electric cars manufactured in China. Japan has led efforts to reduce the world’s reliance on China for critical rare earth elements. While Taiwan’s official stance has not been publicly announced, the actions of its business community align with those of the U.S., Europe, and Japan.
Setting aside politics and public statements, the commercial reasons for these economic entities rejecting the Chinese Communist Party are generally the same. For decades, developed economies on every continent have found China attractive. Low production costs and the reliability of Chinese businesses have been appealing factors. Beijing’s demands on foreign entities have exceeded the normal scope of global economic relations, but the low costs and reliability have compensated for Beijing’s imposed demands. Trade and investments have flourished. However, in recent years there has been a significant shift in this balance.
China’s wage growth has outpaced other regions of the world, especially in Asia. This trend has weakened China’s previous cost advantage. While the recent depreciation of the Chinese currency has restored some advantages, businesses are mindful of the volatility of currency values and often do not take this into consideration in necessary long-term decisions. The longstanding reliable reputation China had earned, the disruptions during the global pandemic, and Beijing’s subsequent years of stringent COVID-19 containment measures have largely eroded that reputation. Additionally, Beijing’s current obsession with national security has led to increased interference by Chinese officials in foreign companies operating within the country. The declining attractiveness and increased mandatory requirements have significantly tilted the decision scales of major corporations globally against the Chinese Communist Party.
Signs of Taiwan companies distancing themselves from China are very apparent, even more so than in the United States. While China remains Taiwan’s largest trading partner, its share in Taiwan’s trade has been steadily declining since 2021. In that year, China’s sales in Taiwan and purchases from Taiwanese manufacturers amounted to approximately $208.4 billion, representing about a quarter of Taiwan’s total trade. By 2023, the latest period with complete data, this number had decreased by nearly 20% to around $166 billion, just over a fifth of Taiwan’s total trade.
In contrast, Taiwan’s total trade with Southeast Asia increased from $117.5 billion in 2021 to $134.6 billion in 2022, a nearly 10% growth within a year. Taiwan’s export reliance on China has also decreased. Recent data, including Hong Kong, shows that this figure has been lower than at any time since 2018. The majority of this difference has flowed to Southeast Asian countries.
If this pattern is not unsettling enough for Beijing, these numbers also demonstrate a sharp shift in investment flows from Taiwan. Since 2010, Taiwanese corporate investments in China have been declining. In 2023, this figure dropped by nearly 40% compared to the previous year. Last year, this amounted to $4.17 billion, less than a third of the level in 2018.
Of note in the capital flows is that some funds have redirected towards Southeast Asia, particularly countries like Singapore, Vietnam, Indonesia, Malaysia, and Thailand. These countries now receive about 40% of the outflow from Taiwan investments, exceeding the amount flowing into China. Investments in Vietnam have quadrupled, especially in the high-tech electronics sector – an area of great concern for Beijing. Taiwanese tech companies such as Foxconn, Wistron, Pegatron, and Quanta are planning to expand their operations in Vietnam.
These grim economic realities cannot help but unsettle Beijing, but equally worrying are the security implications of Taiwan’s commercial shift. The more Taiwan’s trade and investment grow in Southeast and South Asia, the greater the interests Asian countries have in Taiwan, making them more likely to resist any disruptive actions by the Chinese Communist Party. Of course, no one is pretending that these countries have enough military power to deter China’s repeated threats to take over Taiwan. However, the broader interests of countries worldwide make Beijing’s position towards Taipei even more delicate.