For eight years, the former Taroko Textile Corporation factory in Hsinchu County, Taiwan, has been empty, a victim of the migration of manufacturing to the mainland. Now, as China’s supply of cheap labour wanes, work is returning.

ITEQ Corporation, which makes materials electronics companies need to build circuit boards, is installing equipment as part of a NT$2 billion (R665 million) refurbishment to begin production by the end of next year, said Eric Liu, the head of investor relations.

It will be the firm’s first new factory in Taiwan since 1998. ITEQ began moving work to Guangdong in China in 2002.

“People went to China because the costs were lower,” said Liu. “But labour costs there have been rising over the past few years. We’re returning to Taiwan also because of the good supply of skilled workers.”

ITEQ, bicycle maker Giant Manufacturing and contact lens maker Ginko International are among companies tapping Taiwan’s pool of engineering talent as China’s labour supply tightens and rising costs force manufacturers to make more sophisticated products. They are being encouraged by Taiwanese President Ma Ying-jeou, who has introduced tax cuts and other incentives in an effort to boost wages as his popularity slumps.

“The move to make it easier and attractive for overseas Taiwan companies, especially those with higher value added, is a positive step that will ensure the economy stays on a sustainable growth path,” said Tony Phoo, a Taipei-based economist at Standard Chartered. Bringing factories home was “one way to kick-start the economy,” he said.

Private investment would reach a record NT$2.3 trillion this year, up from NT$1.6 trillion in 2009, even as a global slowdown hurt exports, the Statistics Bureau estimated.

Taiwan expects to lure about $5bn (R50.1bn) this year from companies moving back. Last year, Taiwanese government-approved investment in China fell to $12.8bn, from $14.4bn in 2011.

Ma has simplified investment procedures, pursued trade deals with the US and Asia and relaxed immigration rules. He has also boosted ties with the mainland by allowing domestic banks to conduct business in yuan and agreeing to lower tariffs on items from motor parts to textiles.

An agreement signed last week on services has been questioned by opposition legislators, who on Monday won a parliamentary review of the pact, the island’s Central News Agency said.

The president is trying to stem a slump in popular support to 14 percent last month, a year into his second and final term. Growth slowed in last year to 1.32 percent, while average wages adjusted for inflation fell in the first four months of this year to a four-year low.

In the seven months since the president’s tax and labour measures took effect, at least 34 companies including camera lens maker Largan Precision, and tyre producer Kenda Rubber Industrial have filed proposals to invest NT$182.6bn on the island. That was more than triple the amount for 2011, the economic affairs ministry said.

The shift shows how relations between Taiwan and China have changed. During Taiwan’s era of martial law from 1949 to 1987, executives could be tried for treason for investing in China.

The island, once the source of Mattel’s Barbie dolls and Nike sports shoes, has been ruled separately since Chiang Kai-shek’s Kuomintang nationalists fled in 1949 after a civil war against Mao Zedong’s Communist Party, which still considers Taiwan a breakaway province.

Since 1991, Taiwanese companies including Foxconn Technology and Want Want China Holdings built factories on the mainland and hired at least 7 million workers there, according to Taiwan’s Investment Commission. Taroko Textile makes synthetic fabric in Shandong province, according to the company’s website.

“Times have changed from 20 to 30 years ago when manufacturers left Taiwan,” said Wang Wen Yuen, deputy chairman of Taipei-based Chinese National Federation of Industries. “With the worsening global economy, we want the competitive companies to come back.”

ITEQ, Taiwan’s biggest manufacturer of copper-clad laminates for printed circuit boards after Nan Ya Plastics Corporation, planned to double the proportion of capacity in Taiwan to 20 percent with the new plant, Liu said.

Last August, Ginko started up a new factory in Central Taiwan, and will add three more production lines this year. The company entered the mainland in 1995 through acquisitions and built up China’s most popular brand of contact lens, Hydron.

“We’re hoping to sell Taiwan-made products to China,” spokeswoman Chiaoju Huang said.

In China, Taiwan’s top export destination, the central bank this week pledged to keep liquidity levels reasonable after a jump in money-market rates sparked concern of a deeper economic slowdown. The monetary authority told lenders to handle fluctuations in liquidity “calmly” and avoid “irrational behaviour”, according to a statement on its website on Monday.

Elsewhere in the region, South Korea’s manufacturers’ confidence fell to its lowest since March, a report showed yesterday. Singapore’s industrial production growth probably slowed last month from a year earlier, while Thailand’s customs exports dropped last month, according to Bloomberg surveys.

The US Commerce Department will release its third estimate of growth for the first quarter. France will also release gross domestic product data.

Taiwan’s real average monthly wage for the services and industrial companies was equivalent to about $1 500 last year, or 3.4 percent lower than in 2000, according to the Council of Labour Affairs. In China, average wages rose to about $577 a month in 2011, more than four times the level in 2000, data from the country’s National Bureau of Statistics show.

Taiwan’s wages are too high to compete with countries such as Cambodia and Vietnam for lower-skilled work.

“Many manufacturers are still looking for low-cost production bases to expand in, rather than considering Taiwan as the first destination,” said Raymond Yeung, a Hong Kong-based senior economist at Australia & New Zealand Banking Group.

In Vietnam, the average worker earns about $206 a month, and in Bangladesh about $39, according to government data.

“Our economy is in a bottleneck and hasn’t evolved,” said Wang at the National Federation of Industries.

“We’re more interested in the value-added part of the supply chain, the research and development side, for which we can provide skilled labour,’’ said Wang.

Ma’s policies may take years to show their full effect as factories are constructed and equipped.

Even if successful, they may only boost growth by 0.1 percentage point this year, according to Barclays.

Taiwan expects gross domestic product will expand 2.4 percent this year.

The government estimates returning companies will bring back more than 28 000 jobs over three years.

Giant, which began investing in China 20 years ago, is building a new headquarters and research and development centre in Taichung, central Taiwan. When it was completed in three years, the company would increase production of its top-end models at its factory, said chief executive Antony Lo. – Bloomberg