Makers to face oversupply

With China gradually becoming the world's manufacturing center, continued capital flight across the Taiwan Strait seems to be an inevitable trend. But economists warned yesterday that if local companies flock to China and expand there without evaluating actual demand, they may soon suffer from oversupply.

"Many [Taiwanese] electronics companies are in a hurry to lavishly branch out into China. But my advice to investors is sell your shares of those companies soon before their stock prices drop dramatically," former president of Wealth Magazine (財訊) Hsieh Chin-ho (謝金河) said yesterday at a seminar.

The event was co-organized by the Taiwan Institute of Economic Research, a local think tank, and the Wharton Foundation.

Following the burst of the local property market bubble in the early 1990s, Hsieh said that Taiwan may soon encounter another burst bubble triggered by the electronics sector in light of their over-expansion amid low revenue growth. He said that the overall output of Taiwan-based electronics companies is capable of meeting global demand and an eventual oversupply of electronic products will drive down prices and harm the sector's stock performance.

Endorsing Hsieh's view, Fu Don-cheng (傅棟成), director of the Mainland Affairs Council's department of economic affairs, also said that Taiwan has become overly dependent on China's market.

He said that over 30 percent of the nation's exports were bound for China last year, while over 70 percent of investments by the manufacturing sector were also made in China. The one-way capital flow from Taiwan to China has amounted to over NT$70 billion, while investments by China in Taiwan are scarce, he said.

Fu, however, said that Taiwan should not be threatened by the booming economy across the Strait, adding that the government fully respects market mechanisms and Taiwan can also prosper from China's growing economy.

Nevertheless, Hsieh was pessimistic about Taiwan's economic outlook: "The fourth quarter will be a very cold winter, while economic uncertainty will remain into next year."

Wu Rong-I (吳榮義), president of the research institute, maintained the think tank's estimate for this year's gross domestic production at 3.09 percent.

Optimistic about a mild recovery, Wu said in a keynote speech that strength of the nation's economic upturn may not be as strong as expected because public confidence is low.

Chairing the event, Theodore Huang (黃茂雄), chairman of Chinese National Association of Industry and Commerce, expressed concern over the liquidity crunch, adding that foreign capital flows are slowing.

He forecast an economic recovery in the second half year of next year.

Addressing the issue of financial reforms, Hsieh urged the DPP government to speed up the processing of court trials on offenders of financial crimes, punishing white-collar thieves criminals as soon as possible.

Louis Kung (龔天益), vice president of the Bank of New York, Taiwan branch, said that the government should not use the Financial Restructuring Fund to bail out badly managed banks with high-bad-loan ratios.

He suggested using an exiting mechanism to force bad banks out of market.