Saturday, December 22, 2012

WSJ: Taiwan firms returning quietly SHHHHH....

Nightview at a downtown park in Taichung

WSJ: Taiwan firms returning jobs quietly from China:
With wages rising across China and growing labor unrest threatening operations at mainland factories, Taiwan sees an opportunity to try to convince its “salmon to swim back home,” as local media have put it. Officials at Taiwan’s Industrial Development Bureau, which announced Catcher’s and Largan’s factory plans, said they didn’t know of any companies willing to discuss their participation in the program.

Hui-Ying Chen, deputy director of the IDB’s industrial policy division, said Taiwanese companies returning to invest often want to stay low-key, possibly to avoid accidentally offending clients or the local governments they work with. She said that since many of these companies continue to run factories in China, they likely want to avoid saying anything that might come off as negative toward the business environment there. Moreover, Taiwanese upstream suppliers tend to hold a strong belief that any publicity is bad publicity.

“When they call for information, they will leave their telephone number, but often they won’t even tell us what industry they are in,” she said. “Although they want to invest in Taiwan, many don’t want their names announced.”
Local news reports put the number of firms considering at as many as 131.

As I've blogged on several times, one of the sweeteners is that firms that invest a certain amount in a "return" from China can hire more foreign laborers, a number which is already at a record figure. This tends to incentivize the worst kind of investments -- labor-intensive, low value added, heavily dependent on subsidized water and electricity (and effectively, labor), for their profit. The incentives also include zero tariffs on equipment imports, low-interest loans, and tech assistance. ....

Another good sign is the potential return of the smaller firms that were Taiwan's bread and butter. Plastics News observes that Taiwan's plastics firms are considering returning from China....
Two years ago, when Taiwan’s government started urging businesses to consider it, some executives didn’t take the suggestions seriously, said David Chang, vice general manager of Taiwanese press maker Multiplas Enginery Co. Ltd.

“At the time people considered it a joke,” Chang said. “Now people don’t think it’s a joke because of the wage increases [in mainland China].”

The head of the Taiwan Plastics Industry Association, which represents about 700 processing and moldmaking companies, predicted some work could come back, although he cautioned discussions are in their early stages.
Hsieh Sheng-Hai, secretary general of the Taipei-based group, said processors are closely studying it and want to see how key customers, including Taiwan’s large contract electronics manufacturers like Foxconn, handle the increased challenges of operating on the mainland.

He noted that even if work leaves the mainland, it may not come back to Taiwan – it could go to Indonesia, Vietnam or elsewhere in Southeast Asia. But it’s also true that Taiwanese companies see more problems operating in the mainland and are looking for solutions, industry officials said.

“They feel moving back to Taiwan would be much easier to do their business,” Hsieh said.

Some global plastics machinery companies at Taipei Plas, held Sept. 21 to Sept. 25, said they had seen significantly more sales of equipment to companies in Taiwan, and said “reshoring” from mainland China was a big driver.
Naomi Rovnick also reported on this for The Atlantic a few months back, also instancing the plastics industry. She pointed out that other factors are driving the shift of Taiwanese manufacturers out of China....
Sway Su, another attendee and a researcher for Taiwan's Plastics Industry Development Center, a trade association, echoes that view. "Manufacturing wages in some wealthier cities in mainland China are the same as in Taiwan now. So Taiwanese manufacturers want to move their production to Indonesia, Vietnam, Cambodia or Thailand and are looking at how to make that work." The minimum wage in Vietnam's capital, Hanoi, is 2 million dong ($95) a month. By contrast, in China's cheapest province for manufacturing, Jiangxi, in the nation's poor interior, monthly wages are around $137.


But there are other reasons to look farther afield. China began phasing out tax breaks for foreign investors back in 2008 and they are mostly gone. Vietnam, meanwhile, now offers a range of sweeteners. Wang, of JoyFly Technology, says he has just returned from a research trip to Vietnam, where he found that factory land in the south could be leased for 30% less than in China's Pearl River Delta, the export hub close to Hong Kong. "Of course, Vietnam's roads are nowhere near as good as China's and there are often power cuts," he admits.

A lack of credit is driving manufacturers out, or even bust. The Beijing government has been urging state-owned lenders to curb loan growth for some time. Misjudged infrastructure projects that Chinese provincial governments championed as part of Beijing's massive economic stimulus program of 2009-10 may contribute to a huge pile-up of bad loans, economists say, though the extent of the problem remains a matter for debate.

As a result, getting loans from Chinese banks has been a problem for many months, says Gerry Wang (no relation to George), general manager of a Taiwanese owned machinery manufacturing company named FCS based in Ningbo. Liguang's Adam Yin says that banks in Ningbo are lending to successful factories at annual interest rates of 7% to 8%, and claims that in early 2010, rates were more like 6% to 7%.
When the trickle becomes a stream, it will be time to sit up and notice. But most of the firms pulling out of China will be heading for elsewhere -- Mexico, Brazil, Indonesia, the last of which has been in the news lately as a potential investment site.
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