Why Companies Decide to Leave or Stay in China

Taiwan businessman Liao Chin-chang invested in factories in mainland China’s southern city of Dongguan for the last two decades, making everything from shoes to soccer balls and chemicals. Earlier this year, however, he decided it was time to go home to Taiwan.

Liao’s decision came as global tensions and their impact on trade, and the strict policies of Chinese President Xi Jinping, made doing business in China less predictable.

For Liao, the idea of leaving China gained momentum in 2021 when random and frequent power cuts started impacting factory production.

“Since last year, we’d lose power like three or four days a week,” he told VOA’s Mandarin service in an interview. “How can factories survive without power?”

He reached the limits of his patience following a two-month-long COVID-spurred lockdown in Shanghai, China’s biggest city, with a population of 26 million. The lockdown triggered a rare and loud pushback from the public that continues to this day as China sticks to what it calls a “zero-COVID policy.”

 

With Beijing’s strategy of dealing with COVID — on and off lockdowns around the country — China’s economy has slowed. It is only one of the reasons that a growing number of businesses have packed up or are considering leaving the world’s second-largest economy or redistributing their operations.

Other reasons include trade friction between the United States and China, increasing state control of private enterprises and Beijing’s military threats to Taiwan. China considers Taiwan a wayward province and has not ruled out an invasion.

Stay? Or go now?

A recent survey of more than 500 Taiwan companies released by the Center for Strategic and International Studies found that 25.7 percent of firms had already moved a part of their production or sourcing out of China, and 33.2 percent were thinking about doing so. About one-third said they were not moving.

According to the survey, a majority of those leaving China, 63.1 percent, were relocating to Southeast Asia. At 51.3 percent, Taiwan was the next most popular destination for companies relocating from mainland China.

“Taiwanese companies appear to be moving their businesses at numbers far higher than in the past,” the report found.

But they are not just moving out of China; a smaller percentage of firms are moving out of Taiwan, and some of those are heading to the mainland.

Surveys conducted by the European Chamber of Commerce and the American Chamber of Commerce in Beijing and Shanghai have highlighted similar trends.

The European Chamber of Commerce quoted Denis Depoux, global managing director of management consultant company Roland Berger, as saying, “It [China] is too big and too important to scale down.” The chamber found while doing business in China has become increasingly difficult for many foreign firms, two-thirds of European companies experienced revenue increases last year.

For Liao, it all traces back to Xi, his political ambitions, and tight social and economic policies.

“How can you still seal the whole city when the economy is so crushed? Liao asked. “There are so many ships anchored in the Shanghai harbor, the shipments can’t go in or out of the city. China’s economy froze in a matter of seconds. But Xi Jinping doesn’t care. He needs stability for his enthronement.”

On October 16, China will begin a nearly week-long party congress where Xi is expected to be given an unprecedented third five-year term as party chief. Xi’s third term will mark an end to a norm that began just about the time Liao first came to China — an end to a political cycle that steadied Beijing’s relationship with the world as it opened China for business and the nation became the second-largest economy.

The long journey west

Liao moved to China in 1995, when fierce competition pushed businesspeople from Taiwan to join an army of entrepreneurs who relocated there. Liao and others were lured by the prospect of cheap labor and the special status of being from Taiwan.

“The cost of hiring one worker in Taiwan would be enough to hire 50 workers in China,” Liao said. “I had to follow the flow to China because my competitors would do so to make their prices much more appealing.”

At one point, Dongguan’s Taiwan Business Investment Association had more than 3,000 member companies, making it the largest Taiwan business association in the world.

Liao said he remembers in the early days how the Chinese government had preferential policies for Taiwan entrepreneurs and local governments even set quotas for bringing in investments from the island.

“To be honest, Taiwanese businessmen were a very special class of people. They dared not upset us,” he said.

Over the last six years, he said, he saw his product prices drop more than 70%. He said the situation worsened when the power cuts and lockdowns started. During that time, Liao was also under increasing scrutiny from authorities when he discussed the issues on social media apps in China.

In the last few years in China, Liao said, he was invited to “have tea” with the police four times after his account on China’s WeChat social media platform was censored. To “have tea” is an indirect way for the Chinese police to question, interrogate, and sometimes threaten people they consider a danger to national security or social stability.

“They told me, we know in Taiwan you can criticize the president, but here in China it’s different, so please cooperate with us,” he said.

After returning to Taiwan, he began speaking out about his experiences on social media.

Liao observed that currently, people in China are eager to make money but nobody there feels secure.

Bo Gu in VOA’s Mandarin Service contributed to this story.

October 12th, 2022 by
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