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Business trends

Taiwan keen on luring businesses back from mainland China

Government will dangle incentives, but return has its complications

TAIPEI -- Taiwan is rolling out the welcome mat for its companies operating on the Chinese mainland, hoping that they will come back now that the Sino-American trade spat has made doing so more appealing.

President Tsai Ing-wen's administration is considering incentives like tax breaks and assistance securing land for factories, and it plans to submit a bill incorporating such measures to the legislative branch as early as this month, Nikkei learned from a top official.

The administration has been aiming to reduce Taiwan's dependence on the mainland, and the growing trade friction between China and the U.S. provides added impetus. But it will need to address a number of issues, including the stable supply of electric power, to see this plan through.

According to the official, the government will gear the support measures toward Taiwanese manufacturers that are already operating in China and are considering moving factories to Taiwan.

The administration is still ironing out the details, but the measures will likely incorporate tax breaks for investments in plant construction and for research and development activities.

In addition, the government will help the returning companies acquire land for business operations. Taiwanese authorities reportedly are considering the preparation of a total of 1,470 hectares throughout Taiwan as land for industrial use. Also on the table are measures to accelerate the process of acquiring land for industrial use, which normally takes three to five years because of the need for environmental impact studies and the like.

Taiwanese companies began to focus on production in mainland China during the 1980s, well before Japan and the West. That helped fuel their rapid growth, but it also means that most bases of industrial production have moved out of Taiwan and its economy has become more deeply dependent on the mainland.

The danger of this industrial erosion to Taiwan is one reason the Tsai administration is rushing to support companies that are considering bringing their operations back home.

Taiwanese companies are also thinking about returning because of rising labor costs. In this year's survey by the Taiwan Electrical and Electronic Manufacturers' Association, the percentage of companies that said they plan to expand investments and production in China dropped for an eighth straight year to 29.1%.

The trade friction between China and the U.S. is another factor, since it is inducing American companies to look to Taiwan to procure information technology equipment components.

Flexium Interconnect, a maker of flexible printed circuit boards that has used production in China to grow its business, announced Wednesday that it plans to invest NT$10.5 billion ($342 million) to build a new production base in the southern Taiwanese port city of Kaohsiung. The decision might reflect the desire of Apple, one of its main customers.

The northern Taiwanese city of Taoyuan plans to build five new industrial parks for companies returning operations from China. The mayor told Nikkei that an increasing number of Taiwanese companies that have a presence in China have begun inquiring about the availability of industrial-use land.

There is no doubt that the return of companies to Taiwan will be politically beneficial to the Tsai administration, whose approval ratings have slumped amid problems like stagnating incomes among young adults. With Chinese President Xi Jinping turning the screws on Taiwan, Tsai needs to show some economic improvements ahead of the 2020 general election to beat the Kuomintang candidate.

But many issues must be addressed if Taiwanese manufacturers are to come back.

The difference in labor costs between China and Taiwan is narrowing. But with a population of only 23 million, it is not easy to secure workers in Taiwan. "We actually want to return to Taiwan, but the labor shortage is a sticking point," admitted an executive at a leading Taiwanese electronics maker.

The stable supply of electricity is another worry. Tsai administration aims to phase out nuclear power and is already curtailing the operation of nuclear plants. As a result, the electricity reserve margin frequently dipped below 10% during times of peak demand this summer, causing alarm among companies with high power needs.

In order to realize a homecoming by Taiwanese companies, the government may feel pressure from the business community to rethink its nuclear policy.

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