Taipei, Taiwan – As the Chinese military held unprecedented live-fire drills encircling Taiwan during the past two weeks, Taiwanese for the most part shrugged.

On August 6, at the height of the exercises, revellers on Dongyin – an island controlled by Taiwan in the Matsu archipelago just 50km (30 miles) from China’s Fujian Province – danced the night away.

Lii Wen, the head of Taiwan’s ruling Democratic Progressive Party (DPP) chapter in Matsu, quipped that “the EDM bubble-bath party rages on” amid “the 4th Taiwan Strait Crisis”.

For many multinational firms, which are vital to the health of Taiwan’s economy, the heightened tensions may be harder to ignore.

Although it remains to be seen if China’s increased military activity will adversely affect Taiwan’s foreign investment, some foreign firms operating on the island have already begun exploring the possibility of moving elsewhere.

Several foreign business executives that spoke to Al Jazeera on condition of anonymity said the recent tensions around the democratically-ruled island that Beijing claims as its territory had prompted them to consider relocating.

One executive, who has been based in Taiwan for more than a decade with an international consumer goods company, said that the scale of China’s live-fire drills served as a “wake-up call”.

“In the past, when China used to threaten Taiwan, I was dismissive because the threats were all verbal. This time, it looks more like the real thing,” he told Al Jazeera.

Key investors in the company feel the same way, the executive said, and have asked him to explore the possibility of setting up new company operations – both a manufacturing facility and office – in Thailand that would become the firm’s regional headquarters. The executive said he is considering relocating there with his family next year.

The investors “don’t want to wait around for the situation to deteriorate any further” to the point where it poses a “serious risk for company personnel and supply chains,” he said.

An executive at a Fortune 500 company based in Taiwan for several years said that he is exploring relocation to Singapore since he lacks confidence that Taiwan can adequately address the heightened military threat from China.

“The biggest concern for me is the security one, and that ties into the theme of unresponsive business-as-usual, sclerotic government and military,” he told Al Jazeera. “If what happened last week didn’t wake them up, I don’t know what will.”

The executive added: “It’s classic frog in the boiling pot. They don’t realise how hot the water is.”

Taiwan’s foreign firms weigh future amid China risk, COVID curbs

China has carried out unprecedented military drills around Taiwan in response to Nancy Pelosi’s visit to the self-ruled island [File: CCTV via AP]

Their concerns would appear to be widely shared among the island’s foreign business community.

In a survey released by the American Chamber of Commerce in Taiwan on Friday, 43 percent of respondents said they were either in the process of revising or planning to revise contingency plans for dealing with a serious crisis on the island.

Of the 126 participants in the survey, which was carried out August 8-17, 77 percent reported that their business had not been significantly affected by recent military activity in the Taiwan Strait, while 17 percent said they had experienced disruption.

Overall, on a scale of 1-5, survey respondents’ average level of concern of a serious action against Taiwan occurring in the next 24 months was 2.8.

“China’s recent military exercises are a reminder to multinationals that plant and equipment investments in Taiwan, holding shares in listed Taiwan companies, or employees who are in-country, are not immune to blockade or war risk,” Ross Darrell Feingold, a Taipei-based lawyer and political risk analyst, told Al Jazeera.

Regular Chinese military exercises near Taiwan could have serious implications for commercial air and sea traffic routes, given the island’s position along one of the world’s busiest shipping lanes. Approximately 50 percent of the world’s container vessels and 88 percent of the largest such ships passed through the Taiwan Strait in the first seven months of the year, according to Bloomberg.

After pausing the exercises sparked by US House of Representatives Speaker Nancy Pelosi’s August 2-3 visit to Taiwan, Beijing resumed its drills this week following a surprise trip to the island by a new delegation of US legislators.

“Indications are that exercises which can disrupt shipping or civilian air travel are likely to become a regular occurrence,” Feingold said. “Not only will this disrupt the shipment of goods from Taiwan, but it can disrupt inbound shipments of raw materials, food, and energy.”

Border restrictions

Compounding the heightened risk Taiwan faces from China’s aggression is self-imposed isolation stemming from the Taiwanese government’s reluctance to relax some of the world’s strictest pandemic-related border restrictions. Taiwan retains a mandatory four-day quarantine for all arrivals and has yet to resume normal issuance of business and tourism visas.

Critics say the border controls, which have no parallel outside of China, are of dubious benefit to public health. Since January 1, 99.5 percent of COVID-19 cases have been mild or asymptomatic, according to Taiwan’s health authorities. Among the island’s 23.5 million residents, 86.2 percent have had two doses of a vaccine, and 71.8 percent are boosted.

Taiwan has nonetheless struggled to transition from its erstwhile de facto zero-Covid strategy, which was immensely popular with voters, to a new normal. Though the government officially scrapped the policy in April, authorities are widely seen as fearful of the political fallout from a spike in cases linked to overseas travel.

“Unfortunately, the Taiwan government boxed itself in by keeping these controls for longer than most countries in Asia, and the window to lift these controls prior to local elections on November 26 is rapidly closing,” Feingold said.

Taiwan continues to host political dignitaries, with a US congressional delegation led by Senator Ed Markey landing less than two weeks after Pelosi’s, and this week announced the start of talks for a bilateral trade and investment agreement with the US.

Business leaders, however, argue that the occasional high-profile trip cannot make up for two and a half years of lost regular business exchanges.

“Business relationships are very fragile,” Frederic Rocafort, a lawyer at the Seattle-based law firm Harris Bricken, which works with Taiwanese manufacturing clients, told Al Jazeera.

“If you don’t have that ability to network and maintain your existing clients, all it takes is one or two years and you may find someone else.”

Andrew Wylegala, president of the American Chamber of Commerce in Taiwan, said that the island should be welcoming foreign business and investment with open arms, given its long-term strategic goal of reducing its economic dependency on China.

Taiwan’s foreign firms weigh future amid China risk, COVID curbs

A US congressional delegation led by Senator Ed Markey visited Taiwan earlier this week [File: Taiwan Presidential Office/Handout via Reuters]

China, including Hong Kong, accounted for more than 40 percent of Taiwan’s exports last year.

“If there were ever a place and time to reverse the old saying ‘keep your friends close and your enemies closer,’ it would be Taiwan in August 2022,” Wylegala told Al Jazeera. “Circulating goods, talent and money with friendly partners is the best means to strengthen Taiwan, and that still requires moving people.”

PJ Broodbakker, the Netherlands-based vice president of sales and marketing for Dutch firm Haiku Tech, a maker of equipment for producing multilayer ceramic devices, said that his company has been considering increasing its number of Taiwanese suppliers. However, he has not visited Taiwan in over three years, citing the mandatory quarantine as the main reason.

Though the current quarantine is just four days, “it is still prohibitively inefficient, especially if the travel involves a few team members,” Broodbakker told Al Jazeera.

“For us, we are always keen on cooperating with Asian suppliers for technical projects, and Taiwan seems to be the most logical place to go. Unfortunately, with the current restrictions in place, and no visibility on a solution, we find ourselves looking elsewhere more and more,” he said.

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