Chapter III Findings: Taiwan

III.4. FDI and the Taishang

Today the Taishang in China manufacture under three rationales: production for export to Taiwan and the globe, production for Chinese consumption, and access to Chinese FTA partners.

These three trends, along with the lifting of many restrictions regarding Taiwanese investment in China, have had a huge impact on how Taiwanese manufacturing firms invest in China.

Taiwanese FDI in China has consistently increased since the first investments were made in the late 1980s. The first wave of taishang arrived in the areas surrounding the Pearl River Delta beginning in the early 1990s. The second wave settled in Shanghai in the late 1990s, away from the labor-intensive manufacturing regions of the Pearl River.111 Reid and Rigger find that

“through the early 2000s taishang investment was overwhelmingly concentrated in a narrow band of just four or five coastal provinces” from Guangdong to Jiangsu, and have since slowly been moving further up the coast.112 The second wave of Taiwanese FDI moved along the Chinese coast, but as locations found their industrial structure converging, FDI eventually settled back to Fujian and Guangdong due to the convenience of proximity.

108 Tsai, p. 63.

109 Sutter, p. 17.

110 Tsai, pp. 68-69.

111 Schubert, pp. 93-94.

112 Reid and Rigger, p. 9-10.

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Understanding the taishang

Between 1 and 2 million Taiwanese lived and worked in mainland China by 2010113 and have provided China with invaluable advantages both as social services and in industry learning.

Aside from acting as a trade liberalizing economic force in China, a counter to SOE entrenchment,114 taishang manufacturing plants often establish on-site clinics and elementary schools for the benefit of their employees and families. Taiwanese donations have gone toward university construction and hospitals. Chinese industry has learned how to advance and how to do business from the taishang. Technological know-how, efficient enterprise management, and negotiations in international forums have all been benefits China has reaped from Taiwanese investors. Of particular significance to Chinese-Taiwanese relations on the mainland is that PRC officials do not know how many locals Taiwanese firms employ.115 Any official figures are likely to be low estimates.

Taiwanese investors are generally a-political and are self-centered, choosing to focus mainly on their economic affairs though they do feel pressure when cross-strait relations are tense. Any pressure felt by the taishang is typically related to the success of their enterprises under favorable or unfavorable conditions rather than ideology. While taishang avoid politics because it creates problems for business ventures it has been found that the longer they live in China the more likely their identity will change, gradually adopting mainland-centric interests in affairs. By the end of 2014 taishang had organized over 138 Taiwanese business associations (TBAs) based in the mainland in order to lobby Taiwan and the PRC on issues relating to business conditions. TBAs serve as conduits for government policy-making and are a lobbying force for their own business interests. The taishang also attempt to influence popular opinion with their relations to the “financial stakes” of the media. Taiwan’s investment community acts as lobbyists to influence Taiwan’s export industry and policies through “informal power,” but are not involved in the political or governmental processes of either Taiwan or China.116

Taishang behavior is market-driven, and their penetration has been incredibly deep among China’s southern coast where they have had time to establish their support networks.

They have been found to operate as enclave communities of Taiwanese small and medium enterprise managers, operating under their own guanxi principles, who serve many roles in the

113 Tsai, p. 65.

114 Tanner, p. 141

115 Reid and Rigger, pp. 17, 20-21.

116 Schubert, pp. 94-97, 99, 102.

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production cycle, from materials procurement, to parts repair, to niche business services.

Taishang have become so widespread within the Chinese economy in recent years that they have become less important in the eyes of mainland officials, losing clout and positions of prestige among economic policymakers, especially since the 2010 ECFA and the thawing of Taiwan-China relations under Ma Ying-jeou.117

Investment locations in China

Guangdong and Fujian have long been investment locations for Taiwan. Location, economic stability, and proven investment climates through their accrual of capital have been the main factors in Taiwanese investment decisions. Target cities for Taiwanese capital have traditionally been Dongguan and Shenzhen in Guangdong, Shanghai, and Kunshan and Wuxi in Jiangsu Province.118 Xu and Yeh corroborate previous assumptions that Taiwanese investors choose specific locations for investment based on geographical and supply chain considerations.

With Guangdong as their case study they have identified that Taiwanese manufactories prefer establishing themselves in close proximity to Hong Kong, primarily within the Pearl River Delta, in “secondary cities” such as Dongguan in particular. Their research also identifies that Taiwanese SMEs determine investment locations based on the presence of already existing FDI stock and connectivity to other Taiwanese firms and suppliers within their networks rather than provincial incentives such as special development zones that are established by the local or national government. Finally, their research indicates that Taiwanese on the mainland do keep themselves well connected with upstream and downstream partners in Taiwan, and that due to their insular network structure on the mainland they are highly mobile and able to move to various locations in China as conditions change.119 This work suggests that the wholesale movements of upstream and downstream networks to the mainland is not as problematic as other reports suggest.

Taishang attitudes toward investment

Taishang often disregard Chinese incentives to invest inland. Their focus is on making money, not developing China. China’s focus on incentivizing investment away from the coast in its 12th Five-Year Plan had many risks that made attracting investment difficult. Central and

117 Schubert, p. 92.

118 Ding.

119 Zhihua Xu and Anthony Yeh, “Origin Effects, Spatial Dynamics and Redistribution of FDI in Guangdong, China,” 2013, p. 449.

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western China had a lack of experience with investors, local officials lacked experience with managing investment environments, local protectionism was high with obvious “favoritism”

played for local SOEs. Investors must consider additional factors for their operating environment such as the local labor skill and the existing or lacking logistics networks and supply chains.120 As seen, the attitude of the taishang toward China is not political, but one of profit-maximization for the firm. As such taishang appear able to take advantage of their position within market asymmetry.

Trends are showing that the taishang’s next target for investments are in southeast Asia, countries that China has FTAs with. Fujian and Guangdong are among the closest of China’s provinces to these targeted areas. What’s important to note is that the taishang have largely discounted inland China for the next wave of market-driven investment, where costs are still too high due to border effects, preferring coastal locations elsewhere such as Vietnam where costs remain much lower.“Go South” and “Go West,” despite being channeled and focused by shifting Taiwanese and Chinese governmental incentives and restrictions over the years, still follow market forces.

Chinese local authorities see Taiwanese companies as reliable sources of tax revenue who are able to promote jobs, particularly in low-skill manufacturing. Chinese authorities and localities make great effort to attract Taishang, promoting many incentivized programs to attract Taiwanese investment. The City of Chongqing, in an effort to attract ProMOS Technologies, a Taiwanese chipmaker, pursued aggressive perks for the company to establish a local branch with the expectation it would eventually purchase a permanent manufacturing location. Perks included an up-front loan of US$200 million to establish a presence and an additional US$360 million loan from local state-owned banks to complete plant construction.121

Foxconn is one of Taiwan’s best known cross-strait investment success stories. The company is a manufacturing contractor for high-sophistication electronics, and has frequently exported manufacturing to subsidiary and joint ventures in China. Foxconn’s investment strategy is typical of what many Taiwanese firms in the mainland do. Previous research conducted in 2015 on Foxconn by Michaele Gori has found that investments in the mainland between 2002 and 2013 totaled 282, with 219 being indirect investments and 63 direct. Gori assumes that the

120 Nelson (2010).

121 Reid and Rigger, pp. 7, 15, 19.

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high rate of indirect investments comes from Taiwanese restrictions prohibiting specific high-tech investments in mainland China.

Gori’s research identifies four major export “macro-regions” in China for Foxconn operations: The Pearl River Delta cluster, the Yangtze River Delta cluster, the “Bohai Region”

clustered at Tianjin, and the “Great Western” region comprised of a more evenly-spread set of sites among the central provinces. Gori finds that the “Great Western” region has received the most investments from Foxconn, amounting to 31 per cent of total investments between 2002 and 2013, while the Bohai region received the least, at seventeen per cent. However, his research identifies the greatest cluster of investment sites is in Shenzhen in Guangdong.122 Foxconn invested in 17 companies in Shenzhen amounting to US$1,475,157,507 by 2014. Nearby in the same manufacturing macro-region, in Fuzhou, Fujian, Foxconn had only opened one investment site with only US$127,559 worth of investments by the same time.

Gori’s work identifies that direct and indirect investments have been made at 27 different sites in the Pearl River Delta region totaling nearly US$1.77 billion between 2002 and 2013, 17 separate direct and indirect investments made by Foxconn in Shenzhen alone, comprising nearly US$1.5 billion of the region’s total figure. 42 direct and indirect investments were made within the Yangtze River delta during this same time totaling more than US$2 billion with 15 sites located in Kunshan (nearly US$644 million), and 8 in Shanghai (roughly US$164 million).

Investments in the Bohai region totaled to 29 sites at US$1.2 billion, and the Great Western region received investments at 27 sites totaling nearly US$2.3 billion. Overseas subsidiaries of Foxconn invested additional amounts in China.123

HTC is another Taiwanese firm that has followed a different model. HTC is an electronics designer and manufacturer, best known for its smartphone lines. Preferring to keep its production in-house, it recently began a limited manufacturing test in China for local Chinese consumption of mid-sophistication smartphones as a way to improve its lagging growth figures.

It has paired with Taiwanese manufacturing contractor Compal Electronics and Chinese manufacturing contractor Wingtech Group to develop a line of mid-sophistication smartphones for Chinese consumers. The move to produce in China is a means to reach the Chinese consumer market. 124 The mid-level sophistication phones will naturally prevent local Chinese

122 Michele Gori, China’s spatial development and inland industrial relocation: A case study of Honhai-Foxconn, 2015, pp. 36-39.

123 Ibid., pp. 78-88.

124 Eva Dou, “HTC Outsources Some Smartphone Production,” 5 May 2014.

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manufacturers from acquiring Taiwanese proprietary R&D, but will nonetheless assist mainland growth.

Initial reports indicate that HTC’s sales are not as strong as anticipated. A May 2016 article in Focus Taiwan reports:

Market sources said that Chinese consumers are irritated by a move by HTC to use a lower grade of specifications for the HTC 10 offered in the China market than the version provided in other markets around the world.125

Regardless, HTC’s approach is novel and innovative. It reflects a new trend in Taiwanese manufacturing in China that recognizes that traditional in-house manufacturing needs to diversify production areas. The end-market consumers in China do not appear too thrilled with sub-optimal electronics options from this model however.

Wingtech was founded in 2006 and has three R&D centers based in Shanghai, Shenzhen, and Xian, and has a production center located in Jiaxing. It has positioned itself to be a leader in

“Internet+” technology including smartphones, electronic-mall services, and big data services. It has since become a domestic leader in smartphone production in China.126 A March 2010 report indicated that Wingtech ranked first among Chinese mobile phone design companies. The report continued that the company was orienting itself for a future integration of mobile phone companies and planned to play the leading role by acting as a one-stop shop for “service and efficient supply chain management.”127

Taishang and their role in the PRC economies have shaped the PRC’s national interests.

The Central government does not understand the nature of Taishang relationships at the local level and local administrators often do not understand the “off-the-books” relationships that Taishang have developed in their investment ventures. Nevertheless, localities have come to rely on the Taishang relations for their prosperity which the central and local governments acknowledge.128

125 Esme Jiang and Frances Huang, “HTC 10 faces lackluster sales in China,” 5 May 2016.

126 See Wingtech Group, “Wingtech Introduction.”

127 See Wingtech Group, “Wingtech ranks first again of China mobile phone IDH (March 1st, 2010),” 1 March 2010.

128 Reid and Rigger, p. 5.

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在文檔中 兩岸經濟互動: 保護主義下與中國南方形成整合體制的可行性 - 政大學術集成 (頁 54-60)