Benefits of Taiwan’s door to China fade

Businessman Charlie Hsu waited years for easy air travel from his native Taiwan to China. Political tensions between the island and the communist mainland made direct flights impossible.

Today it’s just a 90-minute hop from Taiwan’s capital, Tapei, to Shanghai as relations have warmed.

But Hsu has little reason to go. The global financial crisis has delayed his plans to launch a semiconductor-parts plant near China’s largest city. For many other Taiwanese with businesses and work in China, flights are now one way -- back to the island.

For two decades Taiwanese flocked to China. Many struck it rich. They opened factories, invested in real estate and speculated on currency. Many took advantage of their common use of Mandarin and comparatively better English to broker deals and snatch good jobs in the booming mainland.


Those days are over.

China’s economy has slowed sharply, affecting hundreds of thousands of Taiwanese working and living on the mainland. With their factories tottering, investments shrinking and competition from locals rising, many Taiwanese are wondering whether hitching their fortunes to China is the right way to go.

Taiwan’s economy shrank a record 8.4% in the fourth quarter. By some measures, the current quarter looks worse. Exports to China, Taiwan’s largest trading partner, plunged by about half in January and February compared with a year earlier, far more than the overall drop of 37%. Taiwan sends many of its staple products, including computer parts and electronic devices, to the mainland for reprocessing before they’re shipped to the United States and elsewhere.

As opportunities in China have dried up, a growing number of Taiwanese have come home, some of them abandoning factories and mobs of unhappy Chinese laborers and suppliers. Taiwan’s unemployment rate has jumped to 5.3%, prompting the government to extend jobless benefits and issue consumer vouchers to stimulate spending.


“It’s never been like this before,” says Don Shapiro, a 39-year resident of Taiwan and director of publications for the American Chamber of Commerce in Taipei.

For some Taiwanese, the economic troubles have been a rallying cry in support of Taiwanese President Ma Ying-jeou’s bid for a free-trade agreement with Beijing. Proponents say it would boost Taiwanese competitiveness, lower tariffs and help Taiwan forge similar agreements with Singapore and other nations.

But Ma’s plan is strongly opposed by those who see the increased links as a threat to Taiwan’s sovereignty. Taiwan and China split in 1949 after a long civil war. Although politically separate, Beijing considers the island part of its territory. Politics aside, Taiwanese worry that normalizing economic relations with China would bring in more goods from the mainland, threatening jobs and hurting domestic sectors such as agriculture.

Besides direct flights, Ma already has signed deals liberalizing shipping and postal links and tourism. But those moves haven’t produced a windfall.


There’s been no boomlet of mainland visitors, disappointing Taiwanese who had invested in hotels and other tourist businesses. Meanwhile, the number of Taiwanese traveling to China has fallen sharply since last spring. Taiwanese investment on the mainland totaled 446 projects last year through November, less than half the amount during the same period in 2007, although the dollar volume was up slightly.

Wei Ai, a specialist on China trade at National Chengchi University in Taipei, reckons a free-trade deal would help many Taiwanese businesses. But he doubts that a pact could be signed this year, given the lingering mistrust and deep divisions in Taiwan.

“They’ve overly politicized this issue,” he says.

Surveys indicate that Taiwanese are losing confidence in the economy and Ma’s strategy of drawing closer to Beijing. Even so, many Taiwanese believe that the mainland remains crucial to their nation’s prosperity. Although Taiwan’s residents enjoy a higher living standard -- its GDP per capita of about $32,000 is five times China’s -- the island’s population is only 23 million and its land area about the size of Maryland. Exports drive its economy.


“We’re a trading nation. I don’t think it’s possible for Taiwan to grow in the future without China,” says Chien Kai-lun, 26, a graduate law student at the National Taiwan University in Taipei. “I need [China] for my career.”

But will China need as many Taiwanese as before? With business increasingly focused on China’s domestic market, the advantage is shifting to mainland Chinese.

“They have the contacts, the local networks,” says Corbett Wall, who shuttles between Taipei and Shanghai as a consultant.

Wang Jui-chi, manager of the career center at National Taiwan University, frets about the dimming prospects for graduates. People on the mainland “have better English now. They are going to schools in the U.S. Why would they use someone from Taiwan?”


For some Taiwanese manufacturers, China isn’t an option anymore, not since the mainland began tightening the screws on labor, environmental and safety regulations in recent years. Some producers have moved to Vietnam. Others have quietly returned home.

“In Southern China, we had control over nothing,” says one manufacturer of lighting fixtures, explaining that angry Chinese vendors occupied his factory in Guangdong province and beat up his lawyer after he posted a notice that the plant was closing down. The 43-year-old businessman, who declined to be identified for fear of retribution, says he is trying to rebuild his business on the outskirts of Taipei.

“We can do it without China,” he insists. “Before China, there was Taiwan.”

Taiwan still has a solid base of metal-processing shops. Unlike Japan and South Korea, Taiwan isn’t as dependent on lumbering conglomerates. At the heart of its economy are small businesses, which are inherently more nimble and flexible.


Some Taiwanese see a future in designing and making niche products in smaller quantities, be they high-end bicycles or cultural goods such as fine tea sets.

Charlie Hsu’s company, Taoyuan-based Chenfull International Co., started out in the mid-1970s selling shoe-making equipment. He has since diversified into precision machining, engineering services and water-treatment systems. The 59-year-old expects sales to grow 10% this year from $70 million in 2008.

“They need this know-how and technology, and we need their market,” he says of China.

Other Taiwanese manufacturers in China, disillusioned by what’s happened, find themselves looking for Plan B.


“The golden period is over now,” says J.C. Chiu, who went to the mainland in 1990 because he had trouble finding enough workers to expand his lamp business in Taipei.

At its peak a few years ago, Chiu employed more than 2,000 people at two factories in Dongguan, producing building materials and lamps for Wal-Mart Stores Inc., Home Depot Inc. and Lowe’s Cos. His annual sales ballooned to $30 million.

But he lost $2 million last year, Chiu says. This year he shut down one of the two plants. His orders for 2009 are down more than 50% from a year earlier.

“If the situation keeps deteriorating,” he says, “I will definitely close up [in Dongguan] and go back to Taipei.”