Sat, Jun 19, 2004 page10

• Local firms might feel China's pain

  CLAMPDOWN Beijing's efforts to cool its fast-growing economy, along with the country's power shortages, will have an impact on China-based Taiwanese companies and local exporters as well

  • By Amber Chung / STAFF REPORTER
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  It's premature to say that China's belt-tightening policy might lead its economy to a hard landing, but the ripple effects on Taiwanese busi-nesses could last until the first quarter of next year at the latest, participants at a Taipei seminar said yesterday.

  China's worsening electricity shortages -- a problem unlikely to be resolved in the next year or two -- could also pose a growing threat to China-based Taiwanese companies, they said.

  "China's steps to cool down its sizzling economy will hurt Taiwanese companies that focus on China's domestic demand, which constitute around 30 percent of Taiwanese companies with business plans for China," said Chen Lee-in (陳麗瑛), a research fellow on the Chinese economy at the Chung Hua Institution for Economic Research (中經院).

  China-based Taiwanese busi-nesses whose supply chains depend on local companies would also be affected, Chen said, adding that the influences may last to the first quarter of next year.

  She made the remarks at a seminar, organized by the Taiwan Chamber of Commerce (台灣省商業會) and Taiwan Research Institute (台綜院), on the effects of China's clampdown on industries across the Taiwan Strait.

  Another speaker, Tsai Horng-ming (蔡宏明), the deputy general-secretary of the Chinese National Federation of Industries (工業 總會), said domestic market-oriented industries including auto components, steel, petrochemical and textiles would see a major impact.

  "Semiconductors, optoelectronics and electronic components industries that provide materials for export-oriented industries in China would see little impact," Tsai said.

  In late April Chinese Premier Wen Jiabao (溫家寶) said the country was committed to forceful steps to cool its fast-growing economy by tightening bank lending as well as investment in cement, steel and aluminum projects.

  China has been Taiwan's largest export destination for years. Exports to China hit US$3.1 billion last month, up from about US$2.73 billion in April, according to the Ministry of Finance.

  Since exports to China are mainly electronics products and components, cross-strait trade may not see a huge impact from Beijing's clampdown in the short term, Tsai said.

  While there a mixed views about the effectiveness and the results of the clampdown, pundits said there are few criteria to determine whether the economy will have a soft or a hard landing.

  Luo Huai-jia (羅懷家), executive director of the Taiwan Electrical and Electronic Manufacturers' Association (電電公會), said that if the growth of bank lending and investment in selected areas drops dra-matically, a soft landing is likely.

  The experts also said China's electricity rationing poses a threat to Taiwanese companies there.

  Lack of rain would also impact power supplies since hydroelectric power makes up around 18 percent of China's electricity supplies, Tsai said. Luo agreed, predicting that the thorny problem may not be solved until 2005 or 2006.

  Companies should think about diversifying their investments and targeting markets in countries such as India, said Chen Pao-jui (陳寶瑞), deputy director general of the Council for Economic Planning and Development's economic research department
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