Taiwan’s Premier Wu Den-proudly announced that a senior executive of Volkswagen met with him last week for a second time on the company’s plans to set up a plant in Taiwan. A little later, Wu Den Said that not one but several foreign carmakers have expressed interest in setting up factories in Taiwan. Why the sudden interest in the tiny island?
Mainland China and Taiwan are getting closer. At least economically. The Economic Cooperation Framework Agreement (ECFA) is due to be signed in June. Or in July. Or real soon now. The agreement is not without its critics in Taiwan. Some say, it’s is a cover for unification with mainland China. Wu Den needs good news to sell the pact.
Volkswagen is the largest brand in China, and stayed away from production in Taiwan. First, it makes little sense to make cars in Taiwan for Taiwan. Taiwan’s population is around 23m (the size of Beijing) and is declining. Second, Volkswagen has a distributor in Taiwan, Swire Group subsidiary Beldare Motors Ltd., with not much in sales.
What Taiwan has is a reputation for (Japan-influenced) precision manufacture and electronics prowess. Once the ECFA is in effect, whole cars cannot be exported to China yet without incurring tariffs. Parts could. Setting up a precision parts plant in Taiwan that could export to an open Chinese market would make sense.
And this is what seems to be going on. “We will not just focus on the ECFA tariff benefit in deciding the fate of the new investment project. The key lies in whether a division of labor can be created between the Taiwan plant and those in Southeast Asian nations,” said an unnamed official of Volkswagen Group China.
The reports should be treated with great caution. They are fraught with mistakes. There is no such thing as a “Volkswagen China Co.” And Volkswagen is not the world’s largest car manufacturer, as the Taiwanese are being told. Volkswagen was #3 on the (still valid) OICA list of 2008, and was #3 in 2009 according to numbers released by the world’s largest automakers.