Taiwanese Firms Cut China Exposure as Tensions Mount

Recent data reveals a significant decline in spending by Taiwanese firms in China, recording a year-on-year drop of 39.8% to $3.04 billion. This marks the lowest value recorded since 2001, reflecting the impact of ongoing tech disputes between the United States and China. The data, cited by Bloomberg, suggests that companies are actively mitigating risks associated with these disputes.

The Ministry of Economic Affairs in Taiwan interprets the decline in outbound Foreign Direct Investment (FDI) to China as an indication that Taiwanese businesses are adapting to global supply chain restructuring. Instead of investing in China, they are redirecting their investments to countries like the United States, Europe, Japan, and others.

One notable move in this direction is the decision by Taiwan-based giant Foxconn to invest $1.5 billion to expand operations in India. This strategic shift aligns with the trend of Taiwanese companies diversifying their overseas exposure. In August, Foxconn had already committed $200 million to establish a components manufacturing plant in the Indian state of Tamil Nadu, potentially creating up to 6,000 jobs.

Tensions between China and Taiwan have escalated in recent weeks, particularly in the context of the presidential elections held in Taiwan on January 13. The elections were won by Lai Ching-te of the Democratic Progressive Party (DPP), known for supporting Taiwanese independence. The election results, which did not favour closer ties with Beijing, have heightened tensions with Chinese officials viewing Taiwan as a breakaway province since 1949.

In addition to the decrease in outward FDI investments to China, Taiwanese FDI to 18 other countries reached $5.2 billion, according to the US Department of State. Taipei authorities are actively seeking to strengthen ties with Western countries and businesses, further emphasising the shift in global supply chain dynamics.