Facing the Economic Consequences of COVID-19 in Taiwan

As China’s industrial centers remain in a state of uncertainty due to coronavirus fears, Taiwanese and international companies that have come to rely on the PRC as a production base are now seeking alternative solutions while trying to maintain continuity of operations back home.

When discussing the business and economic implications for Taiwan of the recent novel coronavirus (COVID-19) outbreak, industry leaders and analysts keep returning to an unsettling word: “unknown.” China, a market in which multitudes of Taiwanese and international companies are heavily engaged, was already a uniquely unpredictable place to do business. Now with the COVID-19 crisis added to the mix, the level of unpredictability has reached new heights, causing companies to scramble to determine how best to react in a very dynamic situation.

According to Shanghai-based consultant Kent D. Kedl, two major challenges are currently preoccupying companies operating in China. “Right now, companies’ biggest concern is protecting the health and well-being of their people. That applies to both their local staff, as well as staff from overseas, Hong Kong, and Taiwan,” says Kedl, who works for the global consultancy ControlRisks.

Next is how to prepare to resume operations. “There are issues around quarantine restrictions, and companies need to ask if they have enough people, and whether they have approvals from the local authorities, to start back up,” he says. “These are the kinds of things they need to sift through and decide what’s the best next step.”

Kedl notes that many of the companies he consults for have arranged for their white-collar employees to work from home on an ad hoc basis as a first step. They will then turn to getting production back on track.

While some production is beginning to resume at some companies, there is still no clear indication of when everything will return to normal. As the reported number of infections and the mortality rate increase daily, the Chinese government is resorting to ever-stricter measures covering an ever-expanding geographical area to try to contain the virus’ spread. At any moment, government edicts could put another stop to production.

A recent article on the ControlRisks website cautions that as much as companies are worried about the length of the potential downtime for their business in China, following the PRC government’s directives remains of central importance in facing this new and evolving challenge. This task may be drastically complicated by the often conflicting and unclear directives at the national and local levels.

The article warns readers that the PRC government is treating the outbreak not only as a public health concern but also as a challenge to political and social stability. As a result, the authorities could potentially “react strongly to any perceived failure to comply with special measures or regulations,” ControlRisks advises. “They will also be sensitive to perceived ‘rumour spreading,’ criticism or questioning of official information.”

An added complication is the heavy reliance of China’s manufacturing sector on laborers from other parts of China who travel to production centers and return home for holidays.

“We know that hundreds of millions of people are working outside of the place where they have their household registration, and we know that hundreds of millions of people travel at Chinese New Year back to their hometowns,” says Shelley Rigger, Brown Professor of Political Science at Davidson College and a leading expert on Greater China. “What we don’t know is: are those people traveling long enough distances that they will be deterred from returning to their places of work? Just how many people are not going to be able to come back to work?” Rigger is currently in Taiwan conducting research on a Fulbright grant.

For semiconductor materials provider Versum Materials, the decision to reopen its Shanghai factory the second week of February meant accepting that many workers would be absent. “The Shanghai government began enforcing quarantine restrictions on employees returning from certain areas in early February,” says Al Chuang, the company’s Global Sales Director and Country Manager of Versum Taiwan. “So, while we have the warehouse back up and running, we’re still discouraging those non-essential employees from coming in if it’s not necessary.”

On February 13, Taiwan’s National Development Council (NDC) released a list of five industries that are expected to be the most heavily impacted by the COVID-19 outbreak and its aftermath: tourism, electronic components, machine tools, petrochemicals, and automotive parts.

According to media reports, some Taiwanese electronics companies are cutting their revenue projections for the first quarter by up to 50%. NDC Minister Chen Mei-ling, in a written response to Taiwan Business TOPICS, noted that around 87% of Taiwan’s exports to China are intermediate products, with electric components comprising the biggest category. In addition, many of the electronics companies have established factories in China, where the coronavirus is posing a direct threat to production.

Chen also cited petrochemicals as one of the industries likely to be hardest hit, given that 45% of the industry’s total production is shipped to China. In addition, 30% of the machine tools produced in Taiwan are exported to China.

Considering the damage the coronavirus could potentially do to these sectors, the Director-General of Budget, Accounting and Statistics (DGBAS) has forecast a growth rate of 2.37% for 2020, down from the 2.71% reached last year.

However, Chen observes that while COVID-19 will be bad news for certain sectors, others, such as e-commerce and food delivery platforms, have been seeing a major boom in business. In light of this development, she predicts that domestic consumption in Taiwan will not be as heavily impacted as during the SARS outbreak in the early 2000s.

The COVID-19 outbreak has many in Taiwan on high alert, with medical personnel
donning extra protective gear to avoid infection. Photo: Matthew Fulco

On the ground in Taiwan

Taiwan so far has seen a fairly small number of confirmed cases of COVID-19 infection compared with its regional neighbors Hong Kong, Singapore, and especially South Korea and Japan. Such a relatively low number of infections is an impressive feat, given the huge amount of cross-Strait interaction that takes place in normal times.

Part of the successful containment of the virus in Taiwan can be attributed to timing, says Rigger of Davidson College. “The virus really took off during a period of time where many Taiwanese who would normally be in the mainland were home for the new year’s holiday.”

So, while many Taiwanese are still trapped in certain cities that were placed on lockdown, Rigger says, “the volume of traffic is at a bit of a low ebb since most of it came this way before the new year holiday started.” This gave the Taiwan authorities some additional breathing room to confront the virus’ initial appearance on the island.

The central government appears to have used that opportunity effectively in curbing the spread of infection and keeping the local economy running smoothly. Most importantly, each case of reported COVID-19 infection is thoroughly investigated by the Central Epidemic Command Center (CECC). All those who had close contact with the infected individuals in the weeks leading up to their diagnosis are tracked down and tested for the virus.

The authorities have also been extremely transparent in sharing all relevant information about the COVID-19 situation with the Taiwanese public. Minister of Health and Welfare Chen Shih-chung, who also heads the CECC, has been holding frequent press conferences that are covered in-depth by the local media.

That regular flow of information underscores the stark contrast between an open system of governance like Taiwan’s and a closed one such as China’s, wherein information is withheld or suppressed, says Alex C. Tan, head of the political science department at the University of Canterbury in New Zealand. “In the modern world, we live on information,” says Tan, who also holds an adjunct position at Taiwan’s National Cheng Chi University. “The higher the quality of information we have, the easier it is to make public and economic policy.”

Davidson’s Rigger adds that Taiwan’s transparent approach to public health and abundant high-quality medical facilities encourage people who become ill or show symptoms to self-report out of a sense of civic duty – and because they know they will receive proper medical attention, unlike many places in China where adequate medical care is anything but guaranteed. Furthermore, laws prohibiting public disclosure of personal health information protect the privacy of those who are infected and prevent them from being socially stigmatized.

Businesses in Taiwan are contributing to the effort to ensure safety and social stability by implementing a variety of disease prevention measures, in many cases going above and beyond the government’s basic recommendations. (The legal standards for employers related to the outbreak are outlined in the Law section of this month’s issue).

Many companies are requiring that employees and visitors have their temperature taken before entering the premises. In most cases, those with a temperature above 37.5 degrees are asked to return home until their fever has abated. Quite a few businesses are stocking hand sanitizers and antibacterial wipes, as well as encouraging employees to maintain a stricter level of personal hygiene.

Many businesses are taking precautionary measures to prevent the spread of
COVID-19, such as taking employees’ temperature. Photo: Martti Chen

One of the entities interviewed for this report is requiring all visitors to fill out a form stating whether they have any symptoms, whether they’ve been in close contact with a confirmed case of COVID-19, and whether they have traveled to affected areas within the two weeks prior to visiting.

Companies with employees that travel frequently – particularly those that regularly travel back and forth between Taiwan and China – have had to reschedule or outright cancel cross-Strait business trips, meetings, and events. At Versum, Al Chuang says that all employee travel to China has been postponed – at least until the end of March, but possibly indefinitely – unless absolutely essential. Even then, such cases will require special approval.

In the past, such disruptions could have been devastating for companies doing business internationally, but now many more tools exist to help minimize the impact, and increasing interconnectedness allows for a large portion of daily work to be performed remotely. Web-based document storage and collaborative platforms help to ensure that work can proceed as normal no matter where employees are located, as long as they have consistent internet access.

Flora Chen, business group lead for Microsoft Taiwan’s M365 department, says that the COVID-19 situation can serve as a useful reminder to Taiwanese business owners who have yet to make the switch to digitalizing their workplaces that such a transformation is not only useful, it is increasingly necessary.

“We see that there is already a talent shortage in most industries worldwide due to declining birthrates, and young employees are requiring that their workplace be flexible,” says Chen. “In addition, property costs are rising, so companies are looking for an alternative to the traditional workplace.” Therefore, she notes, large-scale crises that might prevent employees from coming into work as usual are only one reason why more companies need to start transforming their business models to adapt to the digital age.

Collaboration tools like Microsoft’s Teams and SharePoint, says Chen, are incredibly secure and reliable, and can be used in combination with a broad range of different software. They can also help facilitate smooth communication between Taiwan firms and their employees in China, since team members can connect to the mobile version of these platforms using cell phone data in places where internet connection is spotty.

Stay calm but be prepared

At least for the time being, the situation in Taiwan remains relatively under control, and the kind of panic that is all too common during a pandemic has been absent. However, the high degree of uncertainty has made it increasingly difficult for most people to maintain an attitude of outright optimism.

On February 16, Taiwan recorded its first coronavirus-related death, in the central Taiwan city of Taichung. The deceased had no recent history of travel to China but operated a taxi service that had given rides to businesspeople recently returned from affected areas. A few members of the man’s family also tested positive for the virus over the following few days.

The island’s 24th case of COVID-19 was then reported on February 19, involving a woman who had apparently not traveled abroad for two years, which raises the possibility of Taiwan’s first community infection. The case is still under investigation by the CECC.

These developments are not considered cause for further anxiety, especially as the rate of infection in Taiwan still appears to be quite low, but they do indicate that companies here need to be prepared for the possibility that the situation could take a turn for the worse at any moment. Analysts agree that contingency plans should be in place in case operations at the regular place of business are suddenly forced to shut down or continue at much diminished capacity.

The decision on February 17 of a Tai-chung company to halt all operations until the beginning of March reinforces the need for companies in any industry to have a solid Plan B. The decision was made after it was discovered that one of the employees’ family members – the sister of the deceased taxi driver – had tested positive for COVID-19.

Kent D. Kedl of ControlRisks says that companies involved in crisis situations like the current one need to adopt a reasonable amount of apprehension. He recommends giving serious consideration to a range of worst-case scenarios, from most likely to least likely, determining exactly how each would be handled. “They’ve got to suspend their optimism a bit to do this,” he says.

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