Despite efforts to diversify, the majority of Taiwanese foreign investments remain in mainland China. Taiwan's investments in the Chinese technology sector also continue to be strong, despite Taiwanese controls on investments into mainland China.
In 1987, Taiwan's martial law ended, reopening travel and trade between individuals and businesses on the island and mainland China. Taiwanese companies began investing in mainland China to access more consumers and capitalize on lower production costs, particularly in labor-intensive industries such as apparel, textiles, and clothing. This trend soon expanded to high-tech industries.
Taiwan's implementation of The Act Governing Relations Between the People of the Taiwan Area and the Mainland Area in 1992 included regulations on outbound investment into mainland China, especially for high-tech industries like semiconductors and electronics.
Despite Taiwan's regulations limiting outbound foreign investment, today, over 50 percent of Taiwanese companies' total stock of foreign direct investment remains located in mainland China. This stock increased considerably from 2001 to 2012: In some years more than 75 percent of Taiwan's new outbound foreign direct investment went into mainland China.
Though the flows into mainland China have plateaued, and even show signs of decreasing, Taiwan has found it difficult to significantly increase foreign investment into Singapore, Vietnam, and other countries in Southeast Asia vying to become alternatives to China, despite government efforts to promote diversification.
This PIIE Chart is based on Chad P. Bown's Trade Talks podcast episode, Why Taiwan restricts high-tech investment into China.
The data underlying this analysis are available here.