Taiwan could become a magnet for foreign direct investment (FDI) planning to leave China as a result of rising labor costs, according to research by Spanish financial group Banco Bilbao Vizcaya Argentaria (BBVA).
As manufacturing labor costs continue to rise, companies are moving out of China, especially those in the manufacturing and re-processing sectors, the Spanish bank said in a research notae dated May 7, Taiwan News Channel reported.
“We argue that Taiwan could be a good destination for some of the manufacturing-related FDI leaving China, especially the higher- end one,” said Alicia Garcia-Herrero, chief economist for emerging markets at BBVA.
Garcia-Herrero based her argument on a slowdown in Taiwan’s wage growth and the country’s solid “soft and hard infrastructure” --including a stable democracy, high percentage of university graduates and excellent transportation and logistics.
Taiwan’s macroeconomic situation is also sound and per capita income high enough to have created a large middle class talent pool, while the country’s “lax financial conditions,” with a huge liquidity pool, should facilitate the funding of foreign companies’ operations in Taiwan, Garcia-Herrero said.
In addition, Taiwan has worked hard to obtain better market access to China, with the bilateral Economic Cooperation Framework Agreement (ECFA) having increased trade and investment between China and Taiwan by more than 250 percent from 2010 to 2014, she said.
“Looking ahead, we expect Taiwan to become more of a magnet for foreign corporations than it has been so far. Of course some black spots exist, which the Taiwanese government should work on, such as oligopolistic behavior in some sectors and too much government interference,” Garcia-Herrero said.
“However, we believe these drawbacks are no larger than in most other Asian countries, which are also set to attract part of the FDI leaving China,” the economist noted.
