COVID-19, high costs erode Taiwan's trade dependence on China: Experts

Taipei, May 20 (CNA) Taiwan's trade dependence on China, which rose steadily from 2014 to 2021, has started to weaken because of the impact of the COVID-19 pandemic and higher operating costs in China, experts said recently.

China, including Hong Kong, accounted for 28.57 percent of Taiwan's total two-way trade in 2023, the lowest in 10 years and down from 29.90 percent in 2022, according to Ministry of Finance (MOF) figures.

From 2015 to 2021, that share remained above 30 percent, peaking at 34.25 percent in 2020 and remaining as high as 32.97 percent in 2021, the MOF figures showed.

Chang Hung-yuan (張弘遠), an associate professor with the Department of International Trade of Chihlee University of Technology, said several factors have been at play in reducing China's share of Taiwan's overall trade in the past two years.

China has been undergoing structural adjustments to its economy since 2014 to enter what Chang called a "new normal."

That new normal, Chang said, has required a shift in China's growth strategy from factor-driven growth to innovation-driven growth, which has led to a rise in labor costs and land prices.

It was therefore no surprise that many Taiwanese manufacturers have left China for Southeast Asian countries in search of lower labor costs and more affordable land for their production bases, and this shift has affected cross-Taiwan Strait trade, Chang said.

Another factor has been ongoing trade friction between Washington and Beijing, Chang said, which has also led Taiwanese manufacturers to find alternative production bases either in Taiwan or in a third country to avoid the impact of punitive tariffs or other restrictions.

In addition, Chang said, restrictive lockdowns against COVID-19 in China also turned away some Taiwanese manufacturers, and Beijing has moved more aggressively to cultivate its own supply chain rather than provide better terms to foreign investors, putting Taiwanese companies in an awkward position.

With Taiwanese companies moving part or all of their capacity out of China, it means fewer imports of components from Taiwan to China and exports of finished goods back to Taiwan, negatively affecting trade between the two economies.

As the same time, Chang said, desinicization has become a theme, with many Taiwanese companies no longer seeing China as a key market in which they have to be. Instead, they see it as a supplementary market to their businesses.

Chen Chung-hsing (陳松興), a professor with Chinese Culture University's Graduate Institute of National Development and Mainland China Studies, also pointed to the movement of Taiwanese capacity away from China as limiting trade.

He said the China-U.S. trade war and China's COVID-19 rules have accelerated the pace at which the global supply chain is restructuring, pushing foreign investors to adopt a "China Plus One" strategy aimed at diversifying capacity away from China to avoid overreliance on the Chinese market.

In an era of a new cold war between Washington and Beijing, Chen said Taiwanese manufacturers should exercise more caution when investing in China as the global supply chain has split into two groups: one led by the U.S. and Europe, the other dominated by China.

Echoing Chen, Huang Chien-chun (黃健群), section chief of the Chinese National Federation of Industries, said that under the "China Plus One" strategy, vendors that only produced goods in China have increasingly been shunned by overseas buyers.

Huang said the trend toward restructuring the global supply chain is likely to become more apparent in the next few years.

Taiwanese companies, however, have already been veering away from China in recent years, as seen by their investment commitments.

The value of approved China-bound investment by Taiwanese companies fell more than 30 percent in 2023 from a year earlier to US$3.04 billion, the lowest level since US$2.78 billion in investment in 2001, according to Ministry of Economic Affairs statistics.

China-bound investment made up only 11 percent of Taiwan's total investment in overseas markets in 2023, down sharply from 84 percent in 2010, the data showed. That ratio has trended lower every year since 2016.

Chang argued that China had previously planned to weaponize cross-strait economic ties to support its goal of reunification with Taiwan, but with the declining trade and investment, that now appeared unlikely.

He said China could feel frustrated by the distancing of Taiwan under such a circumstance, and expressed concern that Beijing could turn to military rather than economic options to force Taiwan to be part of the People's Republic of China.