• Amidst the whispers of a potential departure of Taiwanese manufacturers from the opulent Kunshan county, stakeholders from local employees to factory magnates shed light on the gravity of their apprehensions.
• Kunshan, a nerve center for world-renowned companies like Foxconn - a primary supplier for tech titan Apple, finds its fate intricately interwoven with Taiwan. As geopolitical undercurrents increasingly shape corporate strategies, the future of this affluent county hangs in the balance.
The Future of Foxconn in Kunshan: A Dance of Rumors and Resilience
Nestled about an hour west of Shanghai, the crown jewel of China's affluence, Kunshan County, has proudly been home to a sprawling Foxconn facility in its north for three decades. This Taiwanese electronics behemoth has, over these years, beckoned hundreds of thousands of youthful workers from adjacent pastoral lands, crafting everything from the slender cords of iPhones to the sleek casings of MacBooks for the tech colossus, Apple.
Yet, as the calendar pages of this year fluttered by, murmurs of Foxconn's potential migration from Kunshan to Vietnam grew louder. Curiously, these whispers have neither stemmed the influx of fresh faces onto the assembly floors nor curtailed the fervent recruitment drives, even on a sultry August evening offering 26 yuan (US$3.57) hourly wages.
A dedicated artisan from the iPhone charger assembly corridor shared with the Post right outside the factory, "The notion of the facility uprooting in just a year or two seems implausible. A transition of this magnitude would span several years."
But for the populace of this southern Jiangsu enclave, numbering 2 million, speculations around Taiwanese firms, including Foxconn, reconsidering their stakes are undeniably disconcerting.
Having worn the mantle of China's most prosperous county for a remarkable 17-year stretch, Kunshan witnessed its meteoric rise fueled by Taiwanese capital. A staggering 30% of the county's GDP, half its industrial production, 60% of its foreign investments, and a significant 70% of its trade—both imports and exports—are anchored to Taiwanese-backed ventures. As the People's Daily reports, by 2020, Kunshan hosted in its embrace over 5,300 Taiwanese enterprises and an impressive cohort of around 100,000 Taiwanese denizens.
Kunshan's Prospects Amidst Potential Taiwanese Departure: A Delicate Balancing Act
Should these enterprises depart, one ponders the trajectory of Kunshan's prosperity.
Such conjectures have also imbued the cross-strait dynamics with a sense of unease. For three decades, the fortification of economic interdependence has played a pivotal role in maintaining a harmonious rapport between the mainland and the self-governing island, which Beijing perceives as a prodigal province, destined to rejoin the mainland fold—by diplomacy or, if compelled, by might.
This evolving landscape prompts introspection: Are we witnessing the twilight of an era?
The Uncertain Landscape of Taiwanese Enterprise in Kunshan: A Tale of Diminishing Gatherings and Contrasting Claims
While there's an absence of official figures delineating the exact exodus of Taiwanese corporations from the county this year, multiple entrepreneurs have verified a palpable shift. There's not only a relocation from the city but a broader exploration of business avenues beyond the nation's borders.
The sense of diminishing presence becomes evident when one gauges the dynamics within the Taiwanese business fraternity across Kunshan's various towns. Factory proprietors confided to the Post about the increasing challenge of rallying their peers for customary community events.
Reflecting on the post-Covid-19 milieu, Adam Chang, a Taiwanese purveyor of construction materials and the leader of a regional business consortium, remarked, "Following the cessation of Covid-19 lockdowns, convening individuals for a 30-table banquet was a straightforward affair. Now, notwithstanding our best efforts, we scarcely muster 20 tables."
Yet, this narrative is juxtaposed against the official stance. Representatives from both Beijing and Kunshan have categorically negated any significant drift of Taiwanese enterprises from the region. In a statement this past May, Ma Xiaoguang, the voice of the Taiwan Affairs Office of the State Council, countered Taiwanese media narratives. These reports had claimed that a significant fraction—about a third—of Taiwanese corporations in Suzhou, the governing city for Kunshan, had relocated, and a majority of the remainder had decentralized some production capabilities.
Ma Challenges Narrative Amidst Rising Concerns: Deciphering the Fluid Taiwanese Business Landscape in Kunshan
Ma has vehemently contested the reported narratives, emphasizing that the city observed the inception of 98 new Taiwanese enterprises in the initial quarter, leveraging a capital of US$612 million. These figures mark substantial upticks of 6.5% and an impressive 96% compared to the same timeframe the previous year.
Yet, the focal point of local apprehension seems to gravitate towards the unidentified quantum of departures.
One such departure can be traced to an industrialist of floor-coating equipment, known only as Chen. Earlier this year, Chen, a 28-year-old Taichung native, translocated his operations from Kunshan to Huzhou in Zhejiang province. The catalyst behind this move? His erstwhile base in Kunshan, proximal to the picturesque Zhouzhuang — a site renowned for its iconic canals — chose to recalibrate its priorities. This shift leaned towards amplifying its burgeoning tourism sector while concurrently intensifying regulatory oversight on manufacturing entities.
Chen offered a glimpse into the evolving dynamics: "While several manufacturing units persist here, their proprietors have vacated." He further elucidated that while young Taiwanese professionals have continued to seek employment opportunities in the mainland post the relaxation of Beijing's border protocols in January, their influx doesn’t seem to counterbalance the egress.
Such a dynamic starkly contrasts the scenario observed three decades prior. That era witnessed a prolific influx of Taiwanese businesses — many modest in scale — gravitating towards the mainland. The allure then? Beijing's progressive liberalization strategy, cost-effective operational framework, and a cultural kinship rendered the mainland an irresistible destination.
The Geopolitical Dance: Taiwanese Firms Navigate Shifting Sands Amidst Mainland Operations
In the contemporary landscape, geopolitical intricacies play an amplified role in influencing the strategic decisions of Taiwanese enterprises, particularly when contemplating relocating operations from the mainland.
Despite grappling with escalating labor and land expenses, China staunchly retains its epithet as the "global manufacturing hub". This standing remains unshaken even as other nations ambitiously vie for the title. China's robust supply chain coupled with its expansive infrastructure network bestows upon it a distinct manufacturing edge over its regional counterparts. However, since 2018, Taiwanese manufacturers have experienced mounting pressure. Downstream international clientele has been nudging them to pivot production to other locales such as Vietnam and Thailand. This redirection can be traced back to the era when former US President Donald Trump championed the call for American corporations to disentangle from China, subsequently igniting a trade face-off by levying substantial tariffs on Chinese goods.
Yet, the pandemic, spanning the last three years, introduced a temporary lull in this momentum. A global surge in electronic product demand inadvertently cushioned manufacturers against rampant outward industrial relocations.
However, with the waning of the pandemic, the tides have once again shifted. The Biden administration's focus has sharply returned to "de-risking" from China. This strategic realignment prioritizes buttressing the supply chains of vital electronics under the banner of national security and concurrently seeks to dilute China-centric supply conduits, encapsulated in the "China plus one" doctrine.
"The exodus of Taiwanese corporations is particularly conspicuous when juxtaposed with other foreign or private entities in China," remarks Peter Tu, a machinery magnate based in Kunshan. "This is primarily because of their deep entrenchment in the export-centric electronics domain."
[Exporters] to the United States must go to Vietnam ... If they don’t go, they won’t receive any more orders
Peter Tu, Kunshan manufacturer
Navigating the Winds of Change: The Pressing Dynamics of Relocation and Its Impact on China's Exports
"Relocating to Vietnam has become imperative for entities primarily exporting finished products to the United States," shared the Tainan-born industrialist. "It's a clear directive from their clientele — non-compliance risks drying up future orders. Despite the logistical challenges posed by such a shift, it becomes a quintessential move for their sustenance."
This evolving relocation strategy appears to have already cast a shadow over China's export vigor. As per the latest official customs documentation, there's been a noticeable contraction. Exports from foreign manufacturers dwindled by 15.5% year-on-year in the inaugural seven months of 2023. This contraction contrasts with a more modest general decline of 9% observed across the entire exporter spectrum.
This downturn is largely attributable to tapering consignments stemming from the processing trade paradigm. Here, the modus operandi predominantly revolves around importing raw materials, wholly or in part, and then re-exporting the value-added products post their processing or assembly within the nation's precincts. Prominent products under this category include coveted electronic items like smartphones.
Kunshan serves as an emblematic testament to this dynamic. The city's commercial ecosystem has, for years, been enriched by the presence of colossal Taiwanese electronics behemoths, including Foxconn — which has additionally anchored a secondary facility in southern Kunshan. This has catalyzed and sustained myriad petite electronic and mechanical ancillary units, integral to the island's exhaustive supply chain.
However, the current conjectures paint a different picture. As these juggernauts contemplate vacating, their smaller counterparts, tethered to them, face an inevitable recalibration, as echoed by multiple entrepreneurs to the Post.
Global Uncertainties Propel Taiwanese Exporters Towards Alternative Supply Pathways
Amid the deepening chasm of US-China relations and the potential unpredictability from future lockdowns, not to mention mounting tensions across the Taiwan Strait, an emerging consensus is being voiced by global importers. A growing cohort, transcending just American stakeholders, is nudging Taiwanese exporters to architect an auxiliary supply mechanism, one that's strategically distanced from mainland China.
This sentiment resonates profoundly with the conversations Ray Kuo, a grease-gun magnate, has been engaged in since the dawn of the year. An oft-repeated inquiry posed by fellow Taiwanese industrialists in Kunshan seeks his insight: "Is pivoting towards Southeast Asia the strategic imperative?"
However, Kuo's experience serves as a cautionary tale about the intricacies of such a shift. Relocating to Southeast Asia, while seemingly alluring, is riddled with its own set of tribulations. From infrastructural bottlenecks and erratic power grids to navigating diverse cultural and linguistic landscapes, the challenges are multifaceted. Moreover, escalating operational expenses could potentially eclipse the allure of economical labor and land resources.
Kuo's narrative traces back to 2018, amidst the crescendo of the US-China trade altercation. Spurred by the fact that exports to the US constituted approximately a third of his firm's revenue, he swiftly channelled an investment of 4 million yuan into establishing a new outpost in Thailand. However, the allure was short-lived. Overlooking the surging overheads of operating within Thailand, his venture witnessed a financial haemorrhage, incurring a loss of 5 million yuan over a span of four years. The exigencies compelled him to redirect investments back to his foundational Kunshan infrastructure the previous year.
A critical impediment, as Kuo elucidates, was the fragmented supply ecosystem in Thailand. Despite its localized operations, the unit found itself reliant on the mainland for pivotal parts and raw materials. This dependency exacerbated costs, ushering in additional freight charges, tariffs, and levies, culminating in an expenditure surge exceeding 20%.
If you don’t go, you are waiting for death. But if you go, you are courting death
Ray Kuo, manufacturer
Navigating the Economic Turbulence: Taiwanese Enterprises in a Bind
"Escalating prices by 20% is a luxury clients aren't willing to entertain," remarked Ray Kuo, reflecting on the manufacturing quagmire Taiwanese firms find themselves in. "Thus, we're bound to continue our manufacturing endeavor's in China, all the while enhancing our product quality and customer service. Even though a few clients air grievances, our order books remain robust. We stand powerless if they pivot to alternative suppliers. Our strategy, however, is bifocal: infiltrating new export avenues and bolstering our domestic market presence."
While Kuo retains a certain entrepreneurial agility, allowing him to explore fresh business horizons, the scenario is dire for auxiliary units. These establishments, witnessing their primary clientele relocate production hubs to Southeast Asia, are ensnared in a precarious dichotomy. Holding their ground on the mainland equates to diminishing orders. Yet, transitioning comes attached with a hefty financial tag.
Furthermore, maintaining a presence across multiple geographical locales isn't necessarily a pragmatic course for compact enterprises. Such a strategy invariably inflates operational expenses, sans any assurance of a proportionate revenue hike.
Kuo, who charted his journey from Taichung to Kunshan two decades prior, paints a vivid portrait of the sentiments pervading this sector. "Relocation isn't an elective decision; it's an imperative driven by client demands. Standing firm is tantamount to awaiting an economic demise, whereas migration feels akin to flirting with that very possibility," he opined.
He continued, drawing attention to the overarching geopolitical backdrop, "The underlying causality is the simmering discord between China and the US. We, the Taiwanese business fraternity, find ourselves inadvertently ensnared, becoming the collateral casualties of this grand geopolitical chessboard."
Kunshan's Economic Landscape: A Shift in Taiwanese Investments
A shared sentiment among several Taiwanese entrepreneurs based in Kunshan signals concern. Of the factory proprietors consulted by the Post, five forecasted a precipitous drop in their annual revenue, estimating a contraction of at least 40%. One among them speculated that such a downturn isn't isolated but is, in fact, a pervasive trend within the region.
Beyond the mere deceleration of financial momentum in mainland China, there's a noticeable stalling of fresh capital influx. Preliminary figures disclosed by Taiwan's Ministry of Economic Affairs' Investment Commission paint a telling picture. They reveal that during the initial seven months of this year, there's been a 4.78% decrement in new investments by Taiwanese entities in China, amounting to a total of US$2.01 billion.
There is an emergent narrative within Kunshan's Taiwanese cohort. A prevailing opinion suggests that the younger Taiwanese demographic in the region predominantly comprises second-generation entrepreneurs, colloquially termed "changerdai." These individuals have established their roots in mainland China since their formative years. In contrast, their counterparts who matured in Taiwan seem to be progressively distancing themselves from the mainland. This newer generation, compared to their predecessors, exhibits a diminished propensity to relocate and integrate into the mainland's fabric.
Shifts in Succession: Changerdai and The Changing Landscape of Mainland Manufacturing
Within the community of "changerdai", the second-generation Taiwanese entrepreneurs in mainland China, a diminishing fraction appear keen on inheriting and managing their familial manufacturing plants. Many among this demographic are veering away from tradition, charting unique professional trajectories.
This comes against a multifaceted backdrop: globally decelerating economies, a challenging post-pandemic economic revitalization in China, and escalating geopolitical uncertainties. Consequently, an unexpected phenomenon is manifesting — the hastening of retirement decisions among the older guard. As many veteran Taiwanese entrepreneurs, now entering their sixties, confront these complexities, they're opting for an early exit. Having dedicated substantial portions of their lives to their mainland ventures, several are electing to liquidate their assets and repatriate to Taiwan.
Kuo, the proprietor of a grease gun manufacturing unit, elucidated, "The prevalent trend of premature retirements can be predominantly attributed to the US-China frictions." For many entrepreneurs in their autumn years, sustaining an established plant's operational rhythm in China is feasible. However, the prospect of pioneering anew in Southeast Asia, particularly without the support of the subsequent generation, appears dauntingly perilous.
Kuo further emphasized that the trio of years characterized by stringent COVID-19 restrictions, which hampered standard business travels, only expedited this evolution in entrepreneurial decision-making.
Cross-Strait Tensions: The Psychological Implications on Business Decision-Making
Amid the escalating military tensions in the Taiwan Strait, catalyzed by high-profile visits from U.S. dignitaries to Taiwan since the prior August, business magnates weigh in on its influence over their commercial ventures. While the geopolitical developments might not immediately transmute into business strategies, they inevitably shape the psyche of decision-makers.
"There's no tangible alteration in our modus operandi due to these tensions. However, one cannot dismiss the subtle psychological reverberations it induces," opined Chen, based in Huzhou.
The forthcoming Taiwanese presidential election, set for the early stages of the upcoming year, adds another layer of convolution to the cross-strait dynamics. The political world is keenly observing the prospects of the Democratic Progressive Party candidate, William Lai Ching-te, known for his pro-independence stance.
Kuo, expressing a palpable concern, remarked, "Given the imminent sense of crisis surrounding the Taiwan Strait, how can Taiwanese entrepreneurs be expected to bolster their investments?" He further ruminated on the vulnerabilities they'd face even if they repatriated their investments to Taiwan amidst a potential conflict in the strait, jestingly alluding to the dire alternative of 'taking a leap into the sea'.
The overarching sentiment? Stability fosters investment confidence. "A peaceful coexistence across the strait is the bedrock upon which investment confidence is built. With the prevailing uncertainty, apprehension is the shared emotion," Kuo concluded.
