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September 23, 2017

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Barclays optimistic on free economic zones

TAIPEI, Taiwan -- The launch of free economic pilot zones in Taiwan will help it attract more investment from foreign firms and Taiwanese businesses based in China, according to British banking group Barclays PLC.

The project can help Taiwan draw in US$12 billion of foreign direct investment in 2014, including US$10 billion from Taiwanese "returnee companies" that had previously moved production to China, the bank said in a research note.

In 2013, Taiwan attracted US$10.5 billion in such investment, including US$7.9 billion from returnee companies during the first 11 months.

"We estimate the resulting investments could lift trend growth by 0.2 percentage points on an annual flow basis, likely from mid-2015," said Leong Wai-ho, a senior regional economist with Barclays, predicting that Taiwan's economic growth could reach 3.5 percent in 2014 and 4.5 percent the following year.

One factor driving inward foreign direct investment is the narrowing of China's cost advantage over Taiwan, Leong said.

Between 2002 and 2012, wages rose an average of 14.1 percent in China, but just 1.4 percent in Taiwan. During this period, the average wage of a Chinese factory worker rose from just 10 percent of that of a Taiwanese worker, to 37 percent, he noted.

Relatively cheaper wages should boost Taiwan's ability to compete for foreign direct investment as well as human capital and expertise, reversing the trend of Taiwanese companies relocating manufacturing to China that began in the 1980s, Leong said.

The free economic pilot zones project is an initiative to turn eight industrial parks, ports and airports into investment hubs. It is aimed at attracting foreign investment and boosting the local economy.

According to Cabinet estimates, the pilot zones can attract an additional NT$21 billion (US$699.33 million) in private investment in 2014 and create 13,000 new jobs.

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