China may be losing its sway over Taiwanese business

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OhN JANUARY 13TH William Lai Ching-te was elected president of Taiwan. He thus secured a third term for his pro-independence Democratic Progressive Party (dpp). The vote will shape relations between Taiwan and China, which wants the island to be governed from Beijing. It will also affect trade relations between the two countries and, because Taiwanese manufacturers are at the heart of critical global supply chains, between them and the rest of the world.

For large Taiwanese companies, tensions between the two shores are not welcome. Taiwanese entrepreneurs have been building factories on the mainland since the 1980s. These made textiles and other cheap products. Today, many people make sophisticated electronic devices, including chips. Chinese data suggests that in 2022, Taiwanese companies held assets worth $43 billion in the People's Republic; in comparison, the figure for those in the United States, an economy 35 times larger than Taiwan's, was $86 billion. The real sum is almost certainly higher; Taiwanese companies often route their investments through Hong Kong and other jurisdictions to avoid scrutiny from their government wary of China.

The Chinese Communist Party is likely to express its dissatisfaction with the dppIt is victory by putting pressure on Taiwanese companies. Companies that support the first DPP President Chen Shui-bian, who served from 2000 to 2008, was subject to regulatory scrutiny and investment restrictions from China, according to Taiwan's Mainland Affairs Council. an agency responsible for relations between the two sides of the strait. In 2005, Shi Wen-Long, a petrochemical magnate and one of Mr. Chen's biggest backers, was forced to humiliatingly publicly endorse a Chinese anti-secession law, which formalized military threats against China. island.

Since dpp Returning to power in 2016 under Tsai Ing-wen, Chinese commercial pressure has increased. Far Eastern Group, a Taiwanese conglomerate, was fined in 2021, which Chinese publications linked to the political views of its chairman, Douglas Hsu. Shortly afterward, Mr. Hsu issued a statement rejecting Taiwan's independence. Even the most pro-China businessmen have not been spared. In October, Chinese state media reported a tax investigation into Foxconn, a giant Taiwanese contract manufacturer with extensive operations in China. Taiwan's National Security Council says the tax investigation was a targeted effort by China to prevent Foxconn founder Terry Gou from dividing the pro-unification camp by running for president. In January, China imposed tariffs on a series of Taiwanese chemical exports, a move widely seen as another warning shot ahead of the election.

In the past, such intimidation led businesses to either support the Kuomintang, wary of independence (KMT), which favors closer economic ties with the continent, or a total withdrawal from politics (approach of TSMC, the world's largest chipmaker and Taiwan's most valuable company). This time, big business bosses, even those with exposure to the continent, seem less intimidated. Some have gone so far as to join the dpp. Early last year, Tung Tzu-hsien, who chairs Pegatron, a major contract manufacturer, became vice chairman of the New Frontier Foundation, a dpp-think-tank associate. As the election approached, Frank Huang, chairman of Powerchip Semiconductor Manufacturing Corporation, openly supported Mr. Lai.

Taiwanese companies' increased resistance to China's heavy-handed tactics has several causes. US tariffs on goods made in China have made exports of manufactured goods to the continent less attractive, notes Chun-yi Lee of the University of Nottingham. Harsh policies such as zero-covid lockdowns and arbitrary crackdowns on sectors such as consumer technology have further dented China's appeal. The recent weakness of its economy reinforces the feeling that Taiwan's economic future may not be as tied to the mainland.

image: The Economist

A change is already visible in Taiwan's trade and investment trends. The island's share of exports to the mainland fell to 22% in the 12 months to November, down from an all-time high of 30% in 2021 and the lowest in almost two decades (see chart). In 2010, more than 80% of Taiwan's annual overseas investment went to mainland China. In 2023, only 11% have done so. Companies like Pegatron and Foxconn are investing in countries like India and Vietnam, which offer both cheaper labor and a chance to avoid U.S. tariffs. According to a recent survey, more Taiwanese business leaders are interested in Taiwan's admission to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, a trade agreement between 12 countries, including Australia and Japan, that to the Economic Cooperation Framework Agreement, that a KMT the government signed with China in 2010.

China's ability to make Taiwanese companies suffer is diminishing for another reason. More than 60% of the island's exports to the mainland and Hong Kong are electrical machinery and equipment, including computer chips. Removing these products could hurt Chinese buyers more than Taiwanese sellers.

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