CSIS Report Sheds New Light on Current Business Sentiment in Taiwan

The survey report, focused on Taiwanese firms, can be used to supplement the results of AmCham’s annual Business Climate Survey.

For close to a decade, AmCham has conducted an annual Business Climate Survey (BCS) of its 500-plus member companies, the majority of which are foreign multinational enterprises with an extended presence in Taiwan and pronounced investment in the island’s economy. The survey’s initial questions focus on these companies’ outlook on Taiwan’s economic performance and their own business prospects over the next 1-3 years. The following questions then dig into how current developments in domestic and global affairs might impact that outlook.

While a growing percentage of AmCham’s membership comprises local Taiwanese companies, the views and concerns of such businesses are naturally less present in the BCS. In fact, in much of the English-language analysis of business sentiment in Taiwan, local industry voices are conspicuously absent.

Seeking to fill that critical gap in understanding, the Center for Strategic and International Studies (CSIS) released a report on a July survey of 525 Taiwanese enterprises, over 60% of which said they had ongoing operations in China. The report on the Taiwan Global Business Climate Survey (TGBCS), released in October, revealed some intriguing results.

Overall, writes the report’s author, Senior Advisor and Trustee Chair in Chinese Business and Economics Scott Kennedy, respondents to the survey expressed concern about overdependence on the Chinese economy and the potential for conflict in the Taiwan Strait. In addition, he notes that Taiwanese businesses are diversifying the location of their operations at a much higher rate than in previous years. That includes moving production and sourcing not just away from China but out of Taiwan as well.

Several of the TGBCS’ questions drew on or were taken directly from AmCham’s 2022 BCS, as well as from surveys conducted by other regional chambers of commerce aimed at gauging business sentiment. This provides TOPICS with a convenient means of comparing some of the views of the Taiwanese businesses targeted in the TGBCS with those of AmCham member companies, many of whom also maintain significant operations in China or serve the Chinese market.

First, a note that more than half a year had elapsed between when the two surveys were conducted, and the way some questions were phrased or tallied differs slightly, so the comparison is imperfect. However, it can still serve as a useful reference for determining where the perspectives of the two groups are more closely aligned and where they might diverge.

A key question asked of respondents to both the BCS and the TGBCS regarded their level of confidence in Taiwan’s economic growth outlook. While an overwhelmingly high percentage of BCS survey-takers responded that they were very or somewhat confident in Taiwan’s economic performance over the next 12 months (87%) and three years (83%), the TGBCS respondents were relatively less sanguine on the same topic: around 63% expressed at least some level of confidence in the Taiwan economy’s growth prospects over the next two years.

Despite this, 73% of those who took the TGBCS said that they were considering expanding their investment in Taiwan. A majority also acknowledged the Tsai administration’s focus on improving the business environment, with more than 76% strongly or somewhat agreeing with the statement that “business interest is one of the top priorities of the current Taiwanese government.” This can be compared loosely with the more than 84% of BCS respondents who said that they were satisfied with the level of attention given by Taiwan’s top policymakers to the needs of business.

One of the most significant factors contributing to the economic outlook and decision-making of businesses in Taiwan, whether local or foreign multinational, has been the evolution of the Covid-19 pandemic domestically. The BCS, which was distributed to members in late 2021, asked them to what extent the domestic outbreak that occurred between May and August last year (before Taiwan had secured sufficient vaccines to inoculate its population) had impacted their business. The TGBCS, on the other hand, looked at how severely the rapid rise in Omicron cases earlier this year had affected its respondents’ business in Taiwan.

The uncertainty about vaccine procurement and the stringent Level 3 pandemic restrictions put in place during last year’s outbreak had a substantial effect on the operations of AmCham members, nearly 87% of whom said that the outbreak had negatively impacted their business. But an even higher 93% of respondents to the TGBCS said that high case numbers in 2022 had extremely or somewhat impacted business this year.

When asked what the most challenging aspect of Covid-19 has been for business operations, drop in demand for products or services was the most chosen answer for BCS respondents at 34.4%, while only 16.8% of TGBCS companies listed the same as their biggest challenge (although 41.1% put it in their top three). Rather, “rise in the cost of products and services” was the foremost Covid-related burden for such companies.

And while over 80% of AmCham member companies said they had faced difficulties due to delays in approval or denial of short- or long-term visa applications, a very low percentage of those who took the TGBCS survey saw this as their biggest obstacle. This difference likely reflects the greater need for foreign multinationals to bring in employees with special or technical knowledge from abroad for equipment installation, training of local staff, or other specialized work tasks. This has especially been the case in the offshore wind industry since Covid restrictions were put in place.

Another interesting difference between BCS and TGBCS responses lies in their respective threat perceptions. AmCham member companies in late 2021 appeared to be most concerned about cybersecurity threats and the spread of mis/disinformation, with Taiwan’s exclusion from multilateral and bilateral trade pacts coming in a close third. However, nearly one-third of TGBCS respondents said that such exclusion would most negatively impact their company’s business operations and competitive positioning in the coming year, making it the issue of greatest concern. The second-most pressing issue among TGBCS respondents was insufficient talent.

This contrasts with the nearly half of BCS survey-takers who said they were strongly or somewhat satisfied with their “ability to recruit enough – and sufficiently capable – personnel to meet their business needs.” Nevertheless, it demonstrates the sustained apprehension local firms feel about talent shortages in certain industries, something that was also cited as a key concern by multiple AmCham committees in the Chamber’s White Paper published in June.

As for trade and economic engagement, both BCS and TGBCS respondents placed a high level of importance on arrangements or accords with the U.S., particularly regarding the negotiation of a formal U.S.-Taiwan bilateral trade agreement (BTA). Whereas around 66% of AmCham members said a BTA was very or somewhat important to their business in Taiwan, more respondents to TGBCS placed it higher than any other agreement, including the Trade and Investment Framework Agreement (TIFA), the Technology Trade and Investment Collaboration Framework (TTIC), and the Economic Prosperity Partnership Dialogue. The recently announced U.S.-Taiwan Initiative on 21st-Century Trade and a double-taxation agreement with the U.S. were at the bottom of the list.

Since the two surveys were conducted, several major events have taken place that could have an impact on the regional business environment and thus on company attitudes. These include U.S. Speaker of the House Nancy Pelosi’s high-profile visit to Taiwan in August and China’s punitive military response, as well as the U.S.’ intensified export restrictions on advanced semiconductor products to China.

In addition, China’s 20th Party Congress in late October, which saw Xi Jinping secure an unprecedented third term, de-emphasize economic growth and market reform in favor of security and ideology in his opening speech, and stack his Politburo Standing Committee with loyalists, might also worry Taiwanese and foreign multinationals with business in China.

AmCham in August conducted a flash survey of its members regarding heightened military tensions in the wake of Pelosi’s Taiwan trip. More than 75% of the 126 respondents reported no significant impact on their operations, although nearly half said they expected increased military activity to affect them in the coming year. Moreover, of the 17% that did report disruptions, around half of those said that they arose from a change in policy from their overseas headquarters, which were concerned about the situation.

However, in emailed responses to TOPICS, CSIS’ Kennedy stated that the recent developments would likely not have influenced the responses to the TGBCS. For one, he noted, China’s exercises in August were “substantial but did not go beyond what analysts had expected.” And although the chip restrictions might have some medium-term significance for businesses, “in the short term they only affect a narrow range of companies.”

Lastly, Kennedy, echoing other analysts, noted that the parts of Xi’s 20th Party Congress speech regarding Taiwan were entirely consistent with the Party’s previous language on the topic. Therefore, while recent events may be of concern to Taiwanese companies, “they may not fundamentally change the companies’ outlook.” Nevertheless, he and his team plan to reissue the survey soon, which, along with the 2023 BCS report to be released early next year, could give observers a more up-to-date view of the overall business climate in Taiwan.