"Time is not on our side" to maintain Taiwan's high-tech edge over China, the economics minister said yesterday.
While Taiwanese firms control "50 to 60 percent" of all the information technology (IT) hardware being produced in China today, Minister of Economic Affairs Lin Hsin-yi (
Lin made the remarks during interpolation in the Legislative Yuan (
The minister pointed out that although Taiwan should maintain its lead in high-tech industries like fabless semiconductor manufacturing for the next three to five years, the four 8-inch wafer semiconductor plants currently under construction in China demonstrate that Taiwan's high-tech advantage is eroding.
In order to ensure the drain of investment money to China does not upset Taiwan's economic stability, Lin said the government must maintain some control.
Next month an economics ministry task force is poised to examine investment laws on notebook computer production, semiconductor manufacturing and the construction of naphtha cracker plants in China, and decide whether or not to make changes.
Investment in the three areas is currently prohibited.
According to Andy Xie, chief economist for the Asia-Pacific region at Morgan Stanley Dean Witter-Hong Kong, Taiwan companies need to start moving manufacturing to China and begin building a knowledge-based economy within the next five years.
He said Taiwan's IT production in China is currently only low-end OEM equipment, such as motherboards and PC cases. Once China enters WTO, Taiwan companies will become less important than multinational firms such as Motorola, Fujitsu and Toshiba, which offer the kind of high-level technology China wants.
The semiconductor industry is one area where Taiwan is missing the boat. According to Xie, US-heavyweight Motorola already has 80 percent of its microchips made in China. NEC and other Japanese firms have also set up shop there.
"The chip industry is moving to China," Xie said. "Taiwan and Korea will lose out -- the writing is on the wall." To avoid obscurity, Taiwan must immediately move to develop higher level technology through intensive research.
"In order to develop such technology, one has to think long term, which is not currently a part of Taiwan's repertoire," the analyst said. "Taiwanese strategy is all about OEM manufacturing -- they only want the cash."
Hong Kong faced a similar situation in the shoe and textile industries years ago, moving production to China for cheap labor and available land. Once Chinese managers learned how to run the plants without assistance, they stepped in and cut out the Hong Kong middlemen.
It was easy to do because the Chinese managers did not depend on Hong Kong for research and development or brand names.
Without developing brand names, establishing a strong R&D foundation and moving manufacturing to China, Taiwan will follow Hong Kong into obscurity, Xie said.
"The future of Taiwan's IT industry is in China. If they don't realize this point ... they're making a big mistake."
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