The EconomistNovember 21st 2020 Business 572
1authorities released an official directive,
signed by five ministries, permitting Tai-
wanese-owned firms in China to “receive
the same treatment as mainland enter-
prises”. It applies even to sensitive areas
like 5gmobile networks, artificial intelli-
gence and the hyperconnected “Internet of
Things”. No other foreign firms enjoy simi-
lar treatment.
These efforts by Beijing have so far had
limited success. Annual investment flows
from Taiwan have fallen by more than half
since 2015 (see chart). This growing reti-
cence on the part of corporate Taiwan can
be explained by three considerations. The
first is geopolitical.
China’s goal of discouraging formal in-
dependence by strengthening business
ties is increasingly transparent to many
Taiwanese. Beijing’s special treatment of
Taiwanese firms, which are designated as
domestic ones in its drive for “indigenous
innovation”, only stokes more suspicions.
It may have helped Taiwan’s indepen-
dence-leaning president win re-election in
January. Chinese firms, which have been
able to invest in Taiwan since 2009, are
coming under fire from the island’s regula-
tors, which suspect them of being a fifth
column for the Chinese Communist Party.
Last month Taobao Taiwan, the local ver-
sion of Alibaba’s Chinese e-commerce plat-
form, said that it would cease operations. Trading partners
Geopolitical tussles beyond the Taiwan
strait also play a role. Tariffs imposed by
America on a long list of Chinese exports
have prompted many Taiwanese producers
to shift operations out of China. A recent
survey by the National Federation of Indus-
tries, a trade body in Taiwan, found that
four in ten Taiwanese bosses with factories
in China said they already have or will
“transfer capacity” elsewhere, mainly to
South-East Asia. Taiwan’s Giant, the
world’s biggest producer of bicycles, has
identified Hungary as an alternative pro-
duction base.Making life even more difficult for
some Taiwanese firms is America’s black-
listing of certain Chinese tech titans. Hua-
wei, a Chinese telecoms champion that is a
particular target of American ire, last year
accounted for 15% of the revenues of Tai-
wan Semiconductor Manufacturing Com-
pany (tsmc), a huge chipmaker. This
month tsmc confirmed it has set aside
$3.5bn for a new plant in Arizona.
A second challenge for Taiwanese firms
concerns competition. Zhang Yingde, a
Taiwanese small-business owner in
Shanghai, talks of a “red supply chain”
which, Beijing’s directives notwithstand-
ing, continues to favour Chinese bidders.
Mr Zhang says he can only hope to get in on
the action as a subcontractor. Jerry Huang,
the head of Ningbo’s Taiwan Business As-
sociation, which represents some 300 Tai-
wanese manufacturers in the eastern Chi-
nese city, says that none has won a big
government contract to date.
Mr Huang does not blame discrimina-
tion against Taiwanese firms. He points in-
stead to the capabilities of homegrown
Chinese rivals, which are becoming more
competitive and innovative. This month
Wistron, a Taiwanese assembler for Apple,
agreed to sell its factory in Kunshan to Lux-
share, a low-cost Chinese competitor. The
fact that Wistron was prepared to cede op-
erations to a Chinese rival suggests that
technical know-how in electronics assem-
bly is no longer a barrier to entry that Tai-
wanese outfits feel compelled to guard.
Now that their dominance in manufac-
turing is fading, Taiwanese firms which
want to succeed in China may need to ride
on “Taiwan’s soft power”, says Keng Shu of
Zhejiang University. This will be easier in
services, he reckons, given Taiwan’s global
reputation for warm customer service. But
unlike manufacturing, where Taiwan en-
joyed a first-mover advantage, China’s ser-
vices industry has no shortage of estab-
lished players, foreign and domestic.
The third reason for Taiwan Inc’s dimin-
ished zeal for China has to do with genera-tional change. Uni-Royal in Kunshan is a
case in point. Taiwanese expatriates who
dominate its management are nearing re-
tirement. Young Taiwanese are reluctant to
take on the often thankless task of running
Chinese factories. A common refrain heard
from Taiwanese owners across China is
that the impending “leadership vacuum”
has made them cautious about big outlays.
To attract stripling Taiwanese entrepre-
neurs, China’s central government has in
the past year opened dozens of “cross-strait
entrepreneurship incubators” in big cities.
These offer perks like free office space, in-
troductions to potential Chinese clients,
posh flats at discount rents and a chance to
apply for up to 500,000 yuan in seed capi-
tal from the government. Weak pitches
such as insufficiently differentiated mo-
bile apps need not apply, says Zhu Yan, who
operates an incubator in Jiaxing, in Zhe-
jiang province. Still, the bar is lower than
Chinese venture-capital firms typically set.
Mr Zhu’s incubator has lured ten Tai-
wanese startups. But schemes like it will
not be enough to allay Taiwanese bosses’
concerns about pricier labour and stiffer
competition—let alone about the new
great-power rivalry. More likely than not,
the golden era of Taiwanese business in
China is over. 7StraitenedSource:MainlandAffairsCouncil *Jan-AugByyear,$bn By province, $m, Jan-Aug 2020Taiwan, investment in mainland China15129630
20*18161412102008Other
provinces
49.8Liaoning19.0
Beijing139.5Chongqing44.8Hubei63.4Guangdong242.8Jiangxi25.1Fujian1,229Zhejiang331.9Shandong188.9
Jiangsu1,281
Shanghai198.6Anhui49.2TAIWANCHINAT
o the consternation of Ugur Sahin
and Özlem Türeci, much of the couple’s
coverage in the German press focused on
their Turkish roots. “Our world can be
saved. From Mainz. By children of mi-
grants,” was a headline in Bild, Germany’s
best-selling tabloid. Their story certainly
defies the cliché of owners of doner-kebab
stands and fruit-and-vegetable shops—
even if Mr Sahin and Ms Türeci, chief exec-
utive and chief medical officer, respective-
ly, of BioNTech, would have preferred to
read about the details of their firm’s discov-
ery, in partnership with Pfizer, an Ameri-
can drugmaker, of a highly effective vac-
cine against covid-19.
“There are other BioNTechs,” says Rose-
marie Kay of the ifm, a think-tank in Bonn.
Migrants are much likelier than the average
German to start a business (see chart on
next page). According to a recent survey by
kfw, a state-owned development bank, one
in four of the 605,000 founders of firms
last year had foreign origins. They are not
limited to groceries and gastronomy. Spot-BERLIN
Many guest workers become guest
entrepreneursGerman businessPride and
prejudice