Taiwanese Investors Continue to Favor Mainland China

Large numbers of manufacturers from all over the world see mainland China as their best choice for an overseas production base following its entry into the World Trade Organization (WTO) in late 2001, and this has added new momentum to the movement of Taiwanese manufacturers into the mainland.

The results for this year of an annual survey conducted by the Ministry of Economic Affairs (MOEA) shows that almost 78% of the 2,000 domestic manufacturers with overseas investments contacted for the survey report that they have operations in the mainland. This represents an increase of five percentage points from the 72% tally from the 2002 survey.

The mainland is by far the favorite destination for outward investment from Taiwan. The United States is a distant second, with investments by 15.9% of the participating companies. Companies with investments in five major Southeast Asian countries—Thailand, Indonesia, Malaysia, the Philippines, and Singapore--dropped to 16% this year, down from 23% in 2002. An MOEA official there attributes the decline in Southeast Asia to the lingering aftereffects of the financial storms which erupted in 1997.

Another result of the survey indicates that Taiwan's outward investors are relying more and more heavily on local suppliers for the parts and materials they need in their overseas operations. More than 40% of the respondents with investments in the mainland reported that they have increased local procurement there, and about the same ratio say they have reduced local procurement in Taiwan. The outward investors have also boosted local procurement in other countries, including Thailand, Indonesia, and the Philippines.

Despite the increased overseas involvement, however, domestic operations still account for an average of 72.5% of the total revenue of these companies, implying that most of them have kept their main operations in Taiwan. For companies with investments in Indonesia, Malaysia, the United States, and Singapore, the domestic-revenue ratio rises above 80%; for those with investments in Thailand, Vietnam, Hong Kong, and mainland China, the figure slips to about 70%.

According to the survey, around 38% of the companies with investments in mainland China reported profits there last year, while 34% reported losses; the remaining companies chose not to reveal their profit/loss situation. Investments in Vietnam and Western Europe did best, with more than half of the investments in those areas showing a profit.