Written by Min-hua Chiang.
Image credit: CA: Corporations In California by 李 季霖/ Flickr, license: CC BY-SA 2.0.
Driven by evolving world politics, Taiwan’s Outward Foreign Direct Investment (OFDI) has played a decisive role in the development of the global supply chain network since the 1980s. In particular, its massive OFDI lifted up China to become the largest world factory. However, the recent US policy to contain China’s emergence as a global tech provider has altered Taiwan’s OFDI direction. Taiwanese firms’ recent investment relocation away from China to the US and other countries in Asia and Europe signifies the reshuffle of global economic gravity following the changing geopolitical dynamism is under way.
The new geopolitical battle has spurred Taiwan’s OFDI to a new milestone. Data from Taiwan’s Investment Commission reckons Taiwanese firms invested US$46 billion in 2024, more than the previous two years combined. Almost one-third of Taiwan’s OFDI went to the US, now Taiwan’s leading investment destination, and 17% was in Southeast Asian countries, including Singapore, Vietnam, Indonesia, Thailand, Malaysia, and the Philippines. In comparison, China only accounted for 8% of Taiwan’s total OFDI, a sharp decline from 84% in 2010.
Taiwan’s greater OFDI in the US than in other countries is mainly attributed to TSMC’s investment in chip fabrication in Arizona. Since its initial announcement in 2020, TSMC has committed to building three fabs there to fabricate advanced chips with the company’s leading-edge process technology (N2, N3 and N4). The initial chip fabrication is expected to begin in 2025, while the second and the third fab will start its operation by the end of the decade.
Apart from the foreign governments’ requests, investment diversification is also now the consensus among private businesses. Japan and Singapore are other key semiconductor investment destinations, accounting for a respective 22% and 21% of Taiwan’s OFDI in electronic parts and components manufacturing in the same year.
Japan was once the global semiconductor power in the 1980s. Despite the demise of chip fabrication, it is still one of the key suppliers of semiconductor materials in the world market. TSMC’s two plants in Japan will provide chips for the automobile industry, final consumption goods, and high-performance computing, key to reviving Japan’s domestic manufacturing industry. Singapore, the high-tech manufacturing hub in Southeast Asia, is another alternative chip fabrication location to diversify the risks of overreliance on chips made in Taiwan. Its proximity to other developing countries in manufacturing labour-intensive goods will facilitate the smooth operation of the regional production network.
Although the official data did not show Taiwan’s semiconductor OFDI in Germany, TSMC has planned to fabricate chips in Germany in 2027, which could provide a steady supply of automotive chips in Europe. Malaysia, Vietnam, and India also aim to become major players in the industry, though Taiwanese semiconductor firms’ OFDI in these countries is still trivial.
All those overseas investments will not reduce the world’s reliance on Taiwan for chips anytime soon, as Taiwan today still accounts for around 80%-90% of TSMC’s total chip fabrication. It might take a few more years to see a clear decline in Taiwan’s share in global chip fabrication.
In the long run, relocating some production capacity to other countries benefits Taiwan. Given the strong global demand for chips in the upcoming AI boom era, the greater OFDI could mitigate Taiwan’s production burden. By moving some semiconductor production overseas, Taiwan will be able to distribute domestic resources to other industries, thus diversifying its industrial development.
Unlike the vigorous investment growth in the US, Japan and Singapore, data compiled from Taiwan’s Investment Commission shows that China only accounted for less than 1% of Taiwan’s OFDI in electronic parts and components manufacturing in 2024. The US export control measures could have discouraged the semiconductor firms from investing in China. This is evidenced by Taiwan’s decreasing OFDI in China’s electronic parts and components manufacturing from US$ 2 billion in 2021 to US$1.5 billion in 2022. In 2023 and 2024, it shrank even more to US$775 million and US$ 210 million, respectively, according to Taiwan’s Investment Commission.
Apart from the US policy re-orientation, China’s limited intellectual property protection and the Chinese state’s strong support of domestic semiconductor firms at the expense of foreign firms’ interest all made the country a less ideal place for high technology investment.
China remains an essential place for manufacturing information and communications technology (ICT) goods. Taiwan’s Investment Commission also reckons that in 2024, 57% of Taiwan’s OFDI in computers, electronic and optical products manufacturing was in China, followed by 20% in Southeast Asian countries and India, and 13% in South Korea.
However, compared to more than a decade ago, when China took 97% of Taiwan’s OFDI in computers, electronic and optical products manufacturing, its share (57%) today is clearly much less than before. The total invested amounts in China’s computers, electronic and optical products manufacturing also shows a sharp fall after the US announced its higher tariff on Chinese goods in 2018.
Taiwan has become a key assembly place for ICT goods for Taiwanese firms. This is shown by the vanishing overseas production ratio to 82% in 2024 (Jan-Nov), from 94% in 2018, according to Taiwan’s Ministry of Economic Affairs. The relocation of ICT production back to Taiwan also benefited the island’s economy. In 2024, Taiwan enjoyed moderate economic growth (4.27%) thanks to the robust exports of ICT goods.
Taiwan no longer relies on China for manufacturing. In response to US policies curbing China’s technological rise, Taiwanese firms have restructured their businesses, reflecting future global economic relations.
Taiwan’s OFDI profile shows that the US, Japan, and Singapore have emerged as crucial spots for manufacturing semiconductor chips. In contrast, China and Southeast Asia (except Singapore) are important in manufacturing with less high technology intensity. Taiwan will remain indispensable for both high-tech manufacturing and final assembly.
The more diversified economic links, driven by semiconductors’ OFDI, are expected to help Taiwan connect more closely with America and the rest of the world. More importantly, more distant economic relations across the Strait will allow Taiwan to better resist China’s economic sanctions. However, semiconductor’s dominance in the OFDI (over 50% of Taiwan’s total OFDI in 2024) has outshined other industries’ importance in linking Taiwan with the outside world. The overreliance on the semiconductor industry poses challenges to Taiwan’s future economic development with equality.
In sum, China’s intention to reduce imports and raise the domestic supply of key components to 70% by 2025 could overturn the existing global chain network. China’s fewer imports of key components from overseas could slow down global trade and sabotage the businesses of high-tech manufacturers in Taiwan and South Korea and their economies.
The US ban on selling advanced chips and equipment to China is expected to retard China’s technological advancement, thus keeping the operation of the current global division of labour relatively intact. Taiwan’s changing OFDI direction is a response to the US policy that would help America in the tech battle with China and maintain the current economic hierarchy. How long will this global supply chain network last will depend on the effectiveness of the US export control policy, the success or failure of China’s home-grown technology, as well as the development of US-China relations.
Min-Hua Chiang is a non-resident fellow at the Taiwan Research Hub, University of Nottingham.
This article was published as part of a special issue on ‘Farewell 2024, Fresh start 2025?’.
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