Taiwan Eyes Growth Potential in Central and Eastern Europe

President Tsai meets a delegation of paliamentarians from the Baltic countries of Lithuania, Latvia, and Estonia. Photo: Office of The President

Observers say that the signing of several economic agreements with countries in the region could result in new flows of technology and talent, both of which would be to Taiwan’s advantage.

While China in recent years has showered Central and Eastern Europe (CEE) with investment pledges and memorandums of understanding (MOU), very few of these overtures have borne fruit. According to data compiled by Czech researchers, China still accounts for less than 2% of the region’s exports and less than 9% of its imports. Chinese investments in CEE make up less than 1% of overall regional foreign direct investment (FDI).

In order to fill the vacuum left by China, Taiwan has begun an outreach effort in CEE that recently culminated in a large delegation of Taiwanese businesses to the region. Led by National Development Council Minister Kung Ming-hsin, the delegation in October visited the Czech Republic, Slovakia, and Lithuania, and signed a total of 19 MOUs, as well as several cooperation agreements, with its new CEE partners.

MOUs between Taiwan and the Czech Republic cover cybersecurity, the space industry, catalyst technology, green energy, and smart machinery, while those signed with Slovakia involve electric vehicles, space development, the digitalization of small and medium-sized enterprises, and smart cities.

Lithuania, for its part, has agreed to work with Taiwan in the areas of semiconductors, life sciences, biotechnology, laser and satellite technology, crystal research, and finance. In addition, the two sides pledged to launch a joint Taiwanese-Lithuanian semiconductor talent and research program. Lithuania also pitched the idea of a Taiwan-invested semiconductor production facility in that country.

Taiwanese investment already accounts for a large proportion of CEE’s inbound FDI. Hon Hai Precision Industry Co. (Foxconn), Asus, Acer, and AU Optronics all have factories in the region. According to the European Economic and Trade Office in Taipei, Hungary was the recipient of a staggering 89.8% of Taiwanese investments in the EU in 2020, compared with the 6.1% and 2.4% invested in Germany and Italy, respectively. Given the Hungarian government’s warm relations with China, this development suggests that economic realities sometimes trump political obligations.

Hungary is one of Taiwan’s major sources of passenger car imports. Three German premium carmakers – Audi, Mercedes, and BMW – as well as Japan’s Suzuki operate production facilities in the country. Foxconn has been manufacturing products in Hungary for almost two decades, and in mid-2021 made news for its launch of the country’s first industrial 5G private network in cooperation with Ericsson and Vodafone Hungary.

“The example of Hungary shows that investment flows into CEE are not dictated by politics but rather by business opportunities,” said Richard Q. Turcsanyi, a program director at the Central European Institute of Asian Studies in the Czech Republic.

Whether the MOUs Taiwan has signed with CEE countries will bring tangible results or end up a disappointment like the ones those countries signed with China remains to be seen, he says.

Turcsanyi notes that it is difficult for China to seek economic retaliation against CEE countries for cozying up with Taiwan, as those countries typically do not export directly to China. Instead, they produce intermediate goods that feed Germany’s manufacturing sector, which then ships the finished goods to places like China.

Grzegorz Stec, an expert on EU-China relations at the Mercator Institute for China Studies in Berlin, says that Taiwan’s MOU bonanza in CEE will likely create significant opportunities for the island’s high-tech sector in Europe.

Stec says he would not be surprised to see Foxconn teaming up with Czech automobile manufacturer Skoda to collaborate on developing electric vehicles (EVs). Such a move would be in line with Foxconn’s ongoing strategic shift from contract electronics manufacturer to global producer of next-generation automobiles. The company is ramping up its development and manufacture of new electronic systems for EVs, including at its Slovak plant, and aims to supply 10% of the world’s EV components and services by 2027. In October, Foxconn unveiled its first three independently developed EV models.

Skoda is a wholly owned subsidiary of Germany’s Volkswagen group, meaning that any joint Skoda-Foxconn project would bring Taiwan closer to the world’s second-largest carmaker. “To Foxconn, Skoda’s plants in Czechia and Slovakia would make for good steppingstones into the European EV market,” says Stec.

Meanwhile, he notes, Lithuania’s proposal for a Taiwan-invested semiconductor fab stands a good chance of becoming reality. The small Baltic country has become known for its advanced laser technology used in the manufacture of semiconductor products.

“Lithuania’s economy is heavily high-tech-oriented, and Taiwanese President Tsai Ing-wen’s recent statement that she would like to visit Lithuania suggests that the country’s pitch for a semiconductor factory may be successful,” he says. Tsai said in November that she would like to travel to Lithuania, a “brave country” that despite Chinese pressure agreed to the establishment of a Taiwan representative office in its capital city, Vilnius, using the designation “Taiwan” rather than “Taipei.”

Stec cites the MOU to establish a joint Taiwanese-Lithuanian semiconductor talent and research program as another important development. The agreement was signed between Taiwan’s National Sun Yat-sen University (NSYSU) and three Lithuanian universities, including Vilnius University, Vilnius Gediminas Technical University, and Kaunas University of Technology. A separate MOU between the NSYSU’s crystal research center and Lithuania’s Center for Physical Sciences and Technology (FTMC) was also signed in October.

The conclusion of these accords comes amid increasing competition for electronic engineers in Taiwan due to a declining working-age population, migration of talent from the island to China and other countries, and a large wave of domestic investment by Taiwanese and international electronics manufacturers. In addition, the notoriously long hours required at local companies have discouraged many young Taiwanese people from pursuing a career in the electronics sector.

Stec notes that the recent MOUs open the door for Lithuanian engineers to come to Taiwan to work, which could result in the flow of engineering talent away from Baltic countries or into Taiwanese semiconductor firms in Lithuania.

On the other hand, there seem to be few prospects for CEE companies to strengthen their position in Taiwan under the new MOUs. Nick Marro, the Economist Intelligence Unit’s Hong Kong-based Lead for Global Trade, says that the Taiwanese economy is already quite open to investment by multinationals.

“Common foreign company gripes tend to be around issues like talent acquisition and utility supply, not so much regulatory obstacles that frustrate overseas investors from playing in the market,” he says. “The greater significance behind the strengthening of Taiwan-European relations will be in the political optics, even if it’s primarily focused on closer government coordination regarding trade and economic issues.”