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China haven for Taiwanese investments in clothing sector
29
Dec '08
Since the thawing of relations between China and Taiwan in the last few years, Taiwanese investments in Mainland China have been growing from strength to strength. China has put forth a slew of incentives and there are many other attractive factors to attract investments from companies in Taiwan. Among many suitable areas for the investments, the incentives and factors in the clothing sector in China have a lot to offer.

One of the biggest factors is the low wages that were prevalent in China in the garment sector. Since the industry is labour intensive, the benefits are out weighed by other factors. Labour is also available abundantly. The cultures and backgrounds are similar so adjusting can be done very fast. The land rents prevailing in some of the provinces are also on the lower side.

Other incentives and attractive factors include preferential tax and investment incentives for Taiwanese companies and the last but not the least is that more preferential tariffs were available to Chinese garment industry in the post quota restrictive period from the US, the EU and many other countries, than those available to other countries. All these factors made China an attractive location for investments in the clothing sector.

During the period 1991-2007, from amongst the total amount of overseas investment from Taiwanese clothing industry, 60 percent of that investment flowed into Chinese mainland. But specific factors occasionally affected investment proportion. For instance the North American Free Trade Area Act in 1994 led to a fall in investment ratio from 92 percent in 1993 to 51 percent in 1994 in China.

When the Taiwanese government declared the policy of no haste with more patience in 1996, investment ratio in the mainland got reduced to only 8 percent and again from 1998 to 2000, due to continual impact of Asian financial crisis, investment ration proportion in the mainland dropped to 35 percent, 12 percent and 39 percent respectively from the Taiwanese clothing companies.

Except for the above mentioned periods, for most of the other years, investment ratio in relation to overall global investment ration was maintained above 70 percent, especially after the global economy started its upward march 2001 onwards, after which the proportion of investments from Taiwan started growing and has been able to touch as much as 99 percent of total overseas investment by the Taiwan clothing industry

However, since the beginning of 2007, China began to increase the minimum wage, to carry out the new "Implementation Regulations of Enterprise Income Tax Law", and "Labor Contract Law", due to which investments from Taiwan clothing industry have been affected which has meant a gain for countries like Vietnam and Bangladesh, with Vietnam in particular having very low wage costs.

Fibre2fashion News Desk - China

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