Taiwan seems to have decided to tread the same path as American, European, and Japanese businesses.
For much the same reasons as these others, the island’s powerful business community has taken steps to diversify its investing, trading, and sourcing away from China and reorient it toward Southeast and South Asia. Some Taiwanese investments have even gone to the United States. Beijing cannot be happy about these trends. China’s economy is weak, and now, when it most needs the support that Taiwanese business has provided for decades, that support is going away.
In this move, Taiwan has taken a lower profile than others. Unlike the United States, the European Union, and Japan, Taiwan has been lower profile in its rejection of China business out of diplomatic considerations. Washington, in contrast to Taipei, has made its outright hostility to China crystal clear. It has banned certain types of trade with China and technology investments in China. It has added to the tariff burden on Chinese goods entering the United States. The EU has also been clear, recently announcing tariffs on Chinese-made electric vehicles (EVs). Japan has led an effort to make the world less dependent on China for critical rare earth elements. Taiwan officially has made no openly hostile announcements, but the actions of its business community, like those in the United States, Europe, and Japan, are unmistakable.
Politics and public announcements aside, the business reasons among these economies for rejecting China are much the same. For decades, the world’s developed economies on whatever continent saw China as attractive. Production costs there were cheap and Chinese operations were reliable. Beijing made demands on foreigners beyond what was normal in global economic relations, but the low cost and reliability compensated for Beijing’s impositions. Trade and investments prospered. But in more recent years, this balance has shifted dramatically.
Signs that Taiwanese business has taken the path away from China are clear, indeed, even clearer than in the United States. Although China remains Taiwan’s largest trading partner, its share of Taiwanese trade has fallen steadily since 2021. That year, Chinese sales in Taiwan and Chinese purchases from Taiwanese producers amounted to the equivalent of $208.4 billion, about one-quarter of the total. By 2023, the latest period for which complete data exists, that amount had fallen almost 20 percent to about $166 billion, barely over one-fifth of the total.
By contrast, Taiwan’s total trade with Southeast Asia went from $117.5 billion in 2021 to $134.6 billion in 2022, almost a 10 percent gain in a single year. Taiwan’s export dependence on China has also shrunk. Even including Hong Kong, recent figures show it is lower than ever since 2018. Most of the difference has gone to Southeast Asia.
If this pattern were not enough to trouble Beijing, the figures also show a dramatic redirection of Taiwanese investment monies. Investment flows from the island’s business into China have been falling since 2010. In 2023, they dropped almost 40 percent from the prior year. At the equivalent of $4.17 billion, they were last year less than one-third of the 2018 level.
The difference in the flow is that some have gone to Southeast Asia, notably Singapore, Vietnam, Indonesia, Malaysia, and Thailand. These countries now get some 40 percent of Taiwanese investment outflows, a proportion that exceeds flows going to China. Investments in Vietnam have risen fourfold, especially in the area most dear to Beijing’s heart: high-tech electronics. Taiwanese tech firms Foxconn, Wistron, Pegatron, and Quanta are all planning to expand their presence in Vietnam.
