Taiwan market luring more Japanese corporate investments amid China tensions, supply-chain concerns
Japanese companies are adding investments in Taiwan, according to company executives and government data, to strengthen ties in the tech supply chain and hedge against mainland China.
Foreign direct investment from Japan to Taiwan has climbed since 2018, when the total exceeded US$1 billion for the first time in more than a decade on its way to a record US$1.7 billion last year, the island's Investment Commission data showed.
Japanese enterprises are now looking for safe havens to grow business amid rapid realignments of tech supply chains that have seen the US sideline China over the past five years, emboldening China to become more self-sufficient while befriending non-US-aligned nations.
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"We have a good relationship between Taiwan and Japan," said Akira Kinoshita, manager of international sales with suburban Tokyo-based point-of-sale machinery vendor Total Cash Systems.
"We are focused on the good relationship, because without any difficulties with respect to international relations, we are safer."
Kinoshita's 12-year-old firm has three retail clients in Taiwan now and ran a stall at this week's Computex Taipei tech exhibition to scout for more. The firm showcased devices, such as credit card readers, used to process store payments.
Beijing sees self-ruled Taiwan as part of its territory, to be united by force if needed, and tensions have surged over the past year. Beijing and Tokyo dispute a tract of the East China Sea and leftover World War II issues.
Much of Japan's capital placed in Taiwan goes toward hi-tech hardware such as semiconductor chips, which are key to both economies.
Japan, Taiwan's third-largest trading partner, makes up "one of the main sources for technology", said Kent Chong, a partner with professional services firm PwC in Taipei. He said Japanese tech firms look to Taiwan particularly for semiconductors and components for electric vehicles and connected devices.
Taiwan has positioned itself as a tech-hardware manufacturing hub since the 1980s. Tech now makes up about 30 per cent of the economy, and 60 per cent of the world's chips - including the most advanced ones - are sourced from Taiwan.
Outside tech, Japanese investors are working in Taiwan on renewable energy, medical instruments and biotech.
Japan-based Sanei Hytechs set up shop in Taipei three years ago to look for factories that can make chips for artificial intelligence, edge computing and connected devices, company representative Ke Yi-ning said. She was helping to staff Sanei's space at Computex.
"To come into this market, the main mission is to connect with manufacturers - basically supply-chain considerations," she said.
Taiwan's Investment Commission approved just US$5 billion worth of projects in mainland China last year, down steadily from annual totals of around US$10 billion a decade ago.
Over the past three years, Japanese officials have encouraged investors to scale back their reliance on production and supply chains in China. A Nikkei survey in November found that more than half of Japanese manufacturers planned to reduce their dependence on Chinese suppliers in the context of mounting US-China tensions.
At the same time, Taiwan is guiding start-ups and other small enterprises to expand in Japan rather than mainland China.
Today's strong bilateral relations often motivate Japanese tech firms to roll out new products in Taiwan to gauge reactions from an ethnic Chinese population, said Yukio Minagawa, deputy trade and economic affairs director general with the Japan-Taiwan Exchange Association.
Japanese investors can easily find Taiwanese partners and consider the island "safe" for their investments, he said.
"If they can sell it, then they'll try mainland China, Singapore and other ethnic Chinese markets," Minagawa said.
But Japanese tech-hardware companies still value the mainland Chinese market due to its size, Minagawa said, noting: "China is not a place we can throw aside."
This article originally appeared on the South China Morning Post (SCMP).
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