What is the future of Taiwan’s economic reliance on China?

Taiwan’s economic dependence on China is not simply the result of communist coercion; it is due to decades of entrepreneurship and rapport, which is driven not by China’s infiltration of Taiwan but by Taiwanese businesses in China.

Three things make it harder to reduce dependence: cross-strait trade, foreign direct investments (FDI), and remittances. However, a less China-centric economy is not unfeasible.

Firstly, Taiwan could consider broader alliances in line with the US-led Indo-Pacific Strategy. In doing so, it could also diversify its flagship electronics trade away from China.

Another route to diversification could be reinternalising economic growth by encouraging Taiwanese and western corporates to boost investments in local internet and renewables infrastructure.

Lastly, to reduce China-bound remittances, confidence in the local economy needs to surpass the social aspirations associated with working or investing in China. Fewer taishang, or Taiwanese businessmen in China, may be a key ingredient for lowering cross-strait cash flow.

These factors may play a role in determine Taiwan’s economic future. However, they are hamstrung by an inconvenient reality: the financial appeal of China to the Taiwanese, despite political differences.

1. Trade: Finding Taiwan’s Global Impact

Taiwan’s trade independence has been hindered by the fact that a large portion of Taiwanese intermediates (semi-finished goods) pass through China.

China is not only Taiwan’s largest trading partner, but also its primary gateway to western countries: in 2019, 40% of the top US-destined exporting firms in China were from Taiwan.

By setting up locally subsidised factories in China, bringing in workers from Taiwan, and expanding cross-strait supply chains, businesses like Foxconn, TMSC, Compal, Wistron, and Inventec have made Taiwan’s electronics sector especially reliant on China. For instance, as of 2017, Foxconn has at least 274 Chinese subsidiaries which regularly exchange goods and resources with their Taiwanese counterparts.

“Hence, market-dominating corporates with exclusive access to end clients like Apple end up dictating bilateral trade.”

This does not look likely to change. Academic Min Hua Chiang has argued, perhaps optimistically, that reform is underway; according to Min, Taiwan’s trade with China dwindled following the US-China trade war and the continuation of China’s consumption-oriented growth policy. However, the latest numbers suggest otherwise. Whilst total export growth remained largely consistent between 2018 and 2019, it accelerated in the latter half of 2020.

Figure 1: Total Taiwanese exports to China from January 2016 to July 2020

Exports only saw a drop in the month of the presidential elections (approximately 50% less than the two previous years) and by October, exports reached the highest ever monthly total, despite mounting rhetoric denouncing Chinese infiltration.

New political movements run up against old private-sector foundations – whether they are Foxconn’s integrated supply chains or Huawei’s agreements with local companies – all of which have long fuelled Taiwan’s import / export synthesis with China.

If Taiwan is to change things, it needs to close the $46 billion export gap between its top partner, China, and its second largest partner, the US.

To achieve this, it could consider alliances both within and beyond Asia.   

It has, for example, a pending membership application for the dormant Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which offers a touchpoint with Australia, New Zealand, Canada, and potentially the UK. Moreover, it could take advantage of the recent US-led Indo-Pacific Strategy, which has helped to redefine the Asia Pacific region away from a model dominated by China.

2. Foreign Direct Investment: Limiting China’s Role in Taiwan’s Domestic Growth

Taiwanese DPP government has been proactive in regulating Chinese FDI in Taiwan. In August 2020 it announced amendments to the Chinese Investments in Taiwan Law, widening the categories of companies that qualify as “Chinese” or “Chinese-owned”, and reducing the Chinese ownership quota in local companies.

Fortunately, China’s FDI in Taiwan has always been trifling: in 2020, it amounted to 0.02% of Taiwan’s total FDI. However, stakes have become more concentrated and biased towards the electronics sector.

Government archives further show that recent top “Chinese” investors are often subsidiaries of Taiwanese electronics corporates. This verifies that cross-strait networks in the top sectors remain strong.  

China-bound FDIs from Taiwan amounted to $3 billion in 2020; its value increased by 20% despite a 50% decrease in the number of individual investments between January and August.

Again, investments are only becoming more concentrated, likely favouring the few players most crucial to the synergy between China and Taiwan (such as electronic equipment providers).

In the absence of regulatory control by the Taiwanese government, the effects of outbound FDI are harder to constrain. For instance, outbound FDI may lead to cross-strait agreements that disproportionately weaken Taiwanese companies.

As an example, in July 2020 Taiwanese Original Design Manufacturer (ODM) company Wistron bought $429 million of shares in the Chinese company Luxshare (which constitutes 0.81% of total shares) and sold two of Wistron’s Chinese subsidiaries to Luxshare for $510 million; both Wistron and Luxshare are Apple’s key iPhone assemblers.

Pushed by demands from companies like Apple, Taiwanese suppliers often need to sell off their resources and team up with Chinese competitors to survive.

“Taiwanese FDI into China therefore contributes to the “red supply chain” – companies that seize market share from Taiwanese counterparts, ultimately impeding Taiwan’s domestic growth.”

However, encouraging Taiwanese companies to repatriate their operations may be a solution. US tariffs on Chinese products have been an important motivation here. Unimicron, Innolux, and Foxconn are allegedly considering a shift away from China.

A Gartner survey in June 2020 reported that 33% of 260 global supply chain leaders “had moved sourcing and manufacturing activities out of China, or planned to do so in the next two to three years”.

With the help of western investors, Taiwan has already expanded beyond conventional hardware businesses. European conglomerates Orsted and WPD, and remote pension funds like Caisse de dépôt et placement du Québec (CDPQ) have recently injected funds into solar energy and wind farms on the island. 

Together, they enhance Taiwan’s allure as an emerging sustainable energy market, and also squeeze out Chinese competition.

In a separate vein, Google, Intel, and IBM are also engaging with Taiwan’s digital and internet markets.

Stronger commercial rapport with western powers may diversify the Taiwanese economy away from traditional electronics, and act as a deterrent to cross-strait FDI.

3. Remittances: Changing Social Relationships across the Strait

Remittances to China highlight the extent of Taiwan’s commercial and social presence there. Higher outward rates indicate Taiwanese capital may have more use in China than Chinese capital in Taiwan.

Figure 2: Total Remittances from Taiwan to China from 2010 to 2019

There are several explanations for this. One is that there are more cash-hungry Taiwanese immigrants and businesses in China than vice versa at any given time.

Another possible explanation is that Taiwan and China do not fall into a conventional remittance pattern: high net worth individuals likely play a greater role than middle-class migrants in the rise of remittances.

Since the early 1980s, many Taiwanese businessmen (known as taishang) have relocated from Taiwan to China to further their enterprises. Hence, they usher in workers, income, and other resources. Given their status and their decision to move from a developed country to a developing country, they more closely resemble colonisers than the typical workforce of their respective industries.

“Taishangs’ impact on labour diasporas thus makes Taiwan’s economic dependence equally a social one.”

Even if internal Taiwanese policies could make a dent in the sending of remittances, it would have little long-term effect unless there were a major disruption to the country’s social relationship with China. Since this has not yet happened, bilateral remittances have continued to follow an upward trend in the long run, despite DPP’s two-term incumbency since 2016.

Taiwan-China links exist because of communal precedents and financial aspirations.

Taiwanese people are generally less skeptical about economic than political relations with China: a 2020 survey revealed only four out of ten opposed closer economic links with China. In contrast, six out of ten opposed closer political collaboration with Beijing.

Established and aspiring businessmen, in particular, welcome maintaining economic relations with China. For instance, the dream of “becoming a taishang andstarting your own company in China” is still very much alive in Taiwan. Recently, a successful Taiwanese China-based entrepreneur, Fan Jiangfeng, received accolades for his book on his experiences in China. The Mayor of Taipei, Ke Wenzhe, even wrote a foreword for Fan.

Fostering homegrown entrepreneurship opportunities may provide ambitious Taiwanese with a route to success that does not travel via China.


From trade to investment to remittances, it is evident Taiwan’s economic dependence on China is to an extent an extension of Taiwan’s economy: it attracts and hosts a great number of Taiwanese corporates, manufacturing sites, and people.

This dependence is thus, like many things, Made in China.

Whilst the DPP government can regulate China’s activities in Taiwan, it cannot reduce overnight the financial appeal of the opposite coasts, where business arrangements, factory constructions, and community growth make dependence ever greater.

Given the two countries’ political history, social makeup, and geographic proximity, a total rupture could do more damage than good. And yet, immediate structural re-allocations followed by long-term social changes constitute a possible solution. Together, soft power and active policy make it difficult, but realistic to curb dependence.

Serena Chiang is a Canadian-Taiwanese Analyst at Audere International. She specialises in financial investigations, corporate intelligence, political risk analysis, and other business support services. Serena previously worked in journalism, consulting, and research in Shanghai, Taipei, and London. She holds a BA in French and Italian from University College London, and is a fluent Mandarin speaker. 

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