Taiwan Firms Pull Back in China as Investments Elsewhere Surge

Taiwanese companies are cutting their exposure to China just as they ramp up investment in other parts of the world in the latest sign of how growing tensions between the US and China are reshaping global supply chains.

(Bloomberg) — Taiwanese companies are cutting their exposure to China just as they ramp up investment in other parts of the world in the latest sign of how growing tensions between the US and China are reshaping global supply chains.

New investments in China by Taiwanese companies declined 10.4% year on year in the first quarter of 2023 to $758 million, according to data released by Taiwan’s Investment Commission Thursday. That follows an almost 14% decrease in such investment last year.

Taiwanese companies, traditionally among the biggest investors in China, have been reducing new capital expenditure in the world’s second-largest economy over the past decade. The slowdown has accelerated since former US President Donald Trump began pushing US companies to decouple from China, a policy largely continued by the Biden administration.

In addition to the slowdown in new money, Taiwanese firms pulled a record amount of profits out of China last year, according to local media. Taiwanese listed companies repatriated NT$114 billion ($3.7 billion) of investment income from China in 2022, according to a statement from the Financial Supervisory Commission on Tuesday.

The paring back of cross-strait investment comes as China has ratcheted up the political, military and economic pressure on Taiwan since the 2016 election of President Tsai Ing-wen. Her Democratic Progressive Party rejects China’s claims to sovereignty over Taiwan, claiming the island is a de facto independent nation, albeit one that is formally recognized by only a handful of countries.

China responded to Tsai’s recent trip to the US, during which she met House Speaker Kevin McCarthy, with days of military drills around the island.

Chinese officials have been keen to reverse the trend. Wang Huning, the No. 4 official in China’s ruling Communist Party, promised greater efforts to persuade Taiwanese businesses to invest in China and to help them integrate into the Chinese economy, the official Xinhua News Agency reported Monday.

Slowing investment in China stands in contrast to a rapid increase in Taiwanese investment elsewhere. Total Taiwanese overseas investment, excluding China, surged 240% to $6.9 billion in the first quarter, the Investment Commission data show, with half of that due to the $3.5 billion investment by Taiwan Semiconductor Manufacturing Co. in a plant in Arizona.

Investment in Southeast Asia also almost doubled as companies seek alternative production bases outside China.

–With assistance from Miaojung Lin and James Mayger.

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