Why do companies decide to leave or stay in China?

Taiwanese businessman Liao Chin-chang has invested in factories in the southern Chinese mainland city of Dongguan for the past two decades, making everything from shoes to soccer balls to chemicals. However, earlier this year, he decided it was time to return to Taiwan.

Liao’s decision came as global tensions and their impact on trade, and Chinese President Xi Jinping’s strict policies, made doing business in China less predictable.

For Liao, the idea of ​​leaving China gained momentum in 2021 when random and frequent power outages began to affect the factory’s output.

“Since last year, we were losing power three or four days a week,” he told the Mandarin service of the voice of america In an interview. “How can factories survive without power?”

He reached the limit of his patience after a two-month lockdown caused by COVID-19 in Shanghai, the largest city in China, with a population of 26 million. The lockdown triggered a rare strong backlash from the public that continues to this day as China sticks to what it calls a “zero Covid policy.”

With Beijing’s strategy of dealing with COVID-19, with intermittent lockdowns across the country, China’s economy has slowed. It’s just one of the reasons a growing number of companies have packed up or are considering leaving the world’s second-largest economy or redeploying their operations.

Other reasons include trade friction between the United States and China, increased state control of private companies, and Beijing’s military threats to Taiwan. China considers Taiwan a rogue province and does not rule out an invasion.

Stay or go now?

A recent survey of more than 500 Taiwanese companies published by the Center for Strategic and International Studies (CSIS) found that 25.7% of companies had already moved some of their production or sourcing out of China, and 33. 2% were thinking of doing it. About a third said they were not moving.

According to the survey, the majority of those who left China, 63.1%, moved to Southeast Asia. At 51.3%, Taiwan was the next most popular destination for companies relocating from mainland China.

“Taiwanese companies appear to be moving their business in much higher numbers than in the past,” the report found.

But they’re not just moving out of China; a smaller percentage of companies are moving out of Taiwan, with some heading to the mainland.

Surveys by the European Chamber of Commerce and the American Chamber of Commerce in Beijing and Shanghai have highlighted similar trends.

The European Chamber of Commerce quoted Denis Depoux, global managing director of management consultancy Roland Berger, as saying that China “is too big and too important to shrink.” The chamber notes that while doing business in China has become increasingly difficult for many foreign companies, two-thirds of European companies based there reported an increase in revenue last year.

For Liao, it all goes back to Xi, his political ambitions and strict social and economic policies.

“How can you keep sealing off the entire city when the economy is so crushed?” Liao asks. “There are so many ships anchored in the port of Shanghai that shipments cannot enter or leave the city. China’s economy froze in a matter of seconds. But Xi Jinping doesn’t care. He needs stability for his enthronement.”

On October 16, Chinese hold a congress of the Communist Party week-long in which Xi is expected to take on an unprecedented third five-year term as party chief. Xi’s third term will mark the end of a norm that began almost when Liao first arrived in China: the end of a political cycle that stabilized Beijing’s relationship with the world as it opened up China for business and the nation grew. became the second largest economy.

The long journey west

Liao moved to China in 1995, when fierce competition pushed Taiwanese businessmen to join an army of other businessmen moving there. Liao and others were drawn by the prospect of cheap labor and Taiwan’s special status.

“The cost of hiring one worker in Taiwan would be enough to hire 50 workers in China,” Liao said. “I had to follow the flow to China because my competitors would do it to make their prices much more attractive.”

At one point, the Dongguan Taiwan Trade Investment Association had more than 3,000 member companies, making it the largest Taiwan trade association in the world.

Liao said he remembers in the early days how the Chinese government had preferential policies for Taiwan businessmen and local governments even set quotas to bring investment from the island.

“To be honest, Taiwanese businessmen were a very special class of people. They didn’t dare to bother us,” he said.

In the last six years, he said, he saw the prices of his products drop more than 70% and said the situation got worse when the power cuts and lockdowns began. During that time, Liao also came under increasing scrutiny from authorities when he discussed the problems of social media apps in China.

In recent years in China, Liao said, he was invited to “have tea” with the police four times after his account on China’s WeChat social media platform was censored. “Drinking tea” is a roundabout way for Chinese police to interrogate, interrogate, and sometimes threaten people they see as a danger to national security or social stability.

“They told me, we know that in Taiwan you can criticize the president, but here in China it’s different, so cooperate with us,” he said. After returning to Taiwan, she started talking about his experiences on social media.

Liao noted that people in China today are eager to make money, but no one there feels safe.

*_{Bo Gu at VOA Mandarin Service contributed to this story.}

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