China causes Taiwanese brain drain

brain drainThe workers in white hair nets packaging rice noodles on an assembly line in Yilan, in rural north Taiwan, have received only two raises since the factory opened seven years ago.

They got the second of those raises last summer, when the factory’s owner had to comply with a new minimum wage of NT$109 ($3.66) per hour.

“We are like a family here, so I thought I should make it NT$110,” a hair above the new minimum, says Lin Ming-yung, president of Tiger Foods. Previously, workers had earned NT$103 per hour.

Such wage stagnation bears testament to the effect the migration of Taiwan’s manufacturing to China over the past two decades has had on the island’s economy.

That move “hollowed out” Taiwan’s manufacturing sector, says Waiho Leong, an economist with Barclays.

It is also sparking a brain drain of educated workers that is worrying employers, as the growth of China and its companies has led to a rise in working conditions and wages on the mainland.

Although Taiwan’s economic growth last year was 1.3 per cent, wages adjusted for inflation fell 1.6 per cent, their third largest fall in history, and are now just below their 2000 levels. By contrast, average real wages in Asia rose 5 per cent in 2011 alone.

In South Korea – whose economy is compared with Taiwan’s for its similar pattern of industrialisation and reliance on exporting manufactured goods – wages after inflation are up about 3 per cent since 2000, according to research from DBS.

The concerns about a brain drain are particularly acute for the technology sector, whose companies produce a large portion of the world’s electronics but have lately been struggling to figure out how to overcome slowing PC sales and fight the rise of larger Korean and Chinese competitors.

While low wages make Taiwan’s companies more competitive on cost than those based in the US or Europe, it means foreign rivals – especially those in China, where Taiwanese can easily work and face no language barrier – can and often do outbid local groups for educated workers, according to Chris Bates, an executive recruiter in Taipei.

The draw of higher wages means workers and young graduates are increasingly not just looking to China after receiving a job offer there, many company managers and university professors say.

“We see a lot of people going to China to find work, not even being sent over by the company,” said one Taipei-based company president.

Economists say Taiwan’s stagnant wages are due to services and other “higher value” industries not growing quickly enough to replace the migration of Taiwan’s manufacturing base to China, even though the services industries now employ the majority of Taiwan’s workers.

“The reason for this stagnation simply put is that the drivers of growth have lost their momentum,” says Vincent Siew, vice-president of Taiwan until last year, in a recent speech.

To boost wages, he says, the country has been trying to encourage industries to develop higher-value and more innovative products, so far without “very good results”.

Now the government, whose president is trying to shore up a lagging economy while battling near record-low approval ratings, is attempting to tackle the issue.

It is offering incentives to manufacturers who relocate high-value production from China to Taiwan. Officials also say they will loosen regulations on domestic industries such as banking to encourage them to export more services, rather than just catering to a local market of 23m.

But many are sceptical the government will be able to make those plans work.

Reforming regulations on the domestic economy could lead to lay-offs, which could be too politically difficult for the current government to tackle, says Peter Sutton, head of research in Taiwan for the brokerage CLSA.

Many factory owners also question how many manufacturers will choose to invest in Taiwan, where manual labour remains scarce, although Mr Bates said some companies think an upcoming trade pact lifting tariffs on goods exported to Taiwan could encourage them to return.

Economists expect recovery in the US and China to lift Taiwan’s export-driven economy this year, but worries remain that few will feel better off unless the government can also spark improvement in wages.

For now, young Taiwanese who want a raise are looking elsewhere. Piper Hsieh, a college graduate now earning $800 a month as a waitress, is applying for a visa to follow her cousin to Australia, where he now works in a wheat factory. Her goal, she said, is to earn enough to support her parents and save for herself.

“If I want to make that money in Taipei,” she said. “It’s not going to happen.”
Additional reporting by Jason Liu
By Sarah Mishkin in Taipei / FINANCIAL TIMES


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