The economic idyll between Taiwanese companies and the Middle Kingdom seems to be coming to an end. The Financial Times indicates in a survey that ” several hundred thousand Companies based in China from the beautiful island have left the country in the past few months. The various manufacturers were once drawn to the area for its labor costs and the government’s hospitality policy. They leave for the same reasons: wages have risen too much and the state has made increasingly authoritarian and nationalist policies. All heavily sprinkled by the economic war between Washington and Beijing.
“” The era of industrial prosperity is over “”
Asked by the Financial TimesLiu Jen, editor-in-chief of China Credit Information Service, a subsidiary of CRIF in Taipei, noted a significant decline in sales and profits for the affected companies. He highlighted the revenues of the 1,000 largest Taiwanese companies, which were largely down on the previous year. Worse, total pre-tax profit fell sharply to its lowest level in 9 years. We are a long way from the strong growth that has previously led certain companies to become global leaders, such as Foxconn Technology, a computer hardware manufacturer and, in particular, an Apple service provider.
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Taiwanese companies have been investing massively in this growth region of the world since the late 1980s. Taiwan is the largest investor in China with nearly $ 191 billion. In 2010, it even peaked in annual investment flows to China thanks to a historic trade deal. The text aims in particular to facilitate exchanges between the two “partners” (relations between the two countries are tense: the island state has claimed its independence since 1947, while the People’s Republic of China continues to claim the island as its territory). . On the agenda: gradual lowering of tariffs on certain goods and making it easier for certain service sectors to open up. This beautiful agreement didn’t last: in 2017, Taiwanese companies sent home more money than they invested in China. Investments fell by more than half in the past year. “” The era of industrial prosperity is over », Summarizes Liu Jen.
The role of the economic war between the United States and China
What happened ? Market conditions have developed with rising labor costs, but also increased competition and other pressures such as theft of intellectual property. Not to mention the Beijing government, which no longer offers corporations the same economic benefits. However, the event that has caused the greatest hardship has been the economic war between China and the United States since Donald Trump came to power. The latter has set itself the goal of reducing China’s dominance in electronic and computer equipment as well as telecommunications. His argument? The Chinese government could use the data collected by their companies to spy on other countries (e.g. via TikTok). Companies therefore pose a threat to national security.
Result: the 45the The President of the United States has blacklisted a growing number of Chinese companies and banned foreign companies (including Taiwanese) by using components that are considered strategic to work with them, among other things. As part of the 5G rollout, Huawei was simply excluded from the US market for telecommunications devices. A ban that has been taken up by other countries such as the UK and Sweden. Between two chairs, the Taiwanese company TSMC, the world market leader in foundries for advanced electronic components, had to stop supplying Huawei with components for smartphones because of reprisals. And that’s just an example. In 2020, the Americans tightened controls on export rules for certain sensitive technologies to China, which spanned many areas and provided for an expanded ban on electronic components. These measures have raised concerns among professionals in the sector who are now trying to significantly reduce their risk to China. The country has also undertaken a long quest to gain greater independence in the manufacture of microprocessors.
Companies are leaving the Chinese workforce, but not the huge market
Taiwanese companies have left China by a handful since last year. The location of the move varies depending on the strategy, some return to their country of origin. For example, Hota, a Taiwanese auto parts manufacturer and Tesla supplier, has focused production in China since 1999. In 2020, the company opened a factory in southwestern Taiwan to serve other markets this year. Others prefer East Asia and India, sometimes Mexico. However, few companies leave China completely. When the country is no longer attractive to production, there is still a colossal market of a billion and a half inhabitants.
The lesson companies could learn from this episode is not to put all your eggs in one basket. For this reason, some companies are adopting a different strategy, namely investing in buying other similar companies in order to secure and strengthen their position in other parts of the world. How technology companies accelerate acquisitions: GlobalWafers (manufacturer of silicon wafers for the production of chips) took over the German company Sultronic in December; Yageo, a component manufacturer, has bought the American Kemet.