SARS unlikely to stem investment

Although the outbreak of SARS in China has somewhat slowed the pace of Taiwanese investment, it has continued to grow in the first four months of the year. What is the driving force that motivates Taiwanese businesspeople to swoop into China and invest there? There are only two answers: increasing competitive power and occupying the global market.

In particular, the success of the IT industry has prompted Taiwanese businesspeople to invest heavily in China since the mid-1990s. Taiwanese businesspeople have already taken advantage of China to create Taiwan's IT empire.

From 1986 to 2000, the output value of Taiwan's IT industry (including domestic and foreign) grew by an average of 26 percent annually. At the same time, the international market share of Taiwan's IT products also increased rapidly. In 1986, the output value of Taiwan's IT products was only 1.5 percent of the world's total output value. In 2000, the output value of Taiwan's IT industry reached 18.7 percent of the total output value of the world's top 10 IT countries.

The main reason behind Taiwan's remarkable achievements is the fact that Taiwanese businesspeople actively pursue overseas investment, particularly in China. Taiwanese businesspeople have taken advantage of cheap labor overseas to integrate capital, management and technology in order to occupy the world market quickly. In 1992, 90 percent of the nation's IT products were manufactured in Taiwan, with only 10 percent manufactured overseas. After 1992, the ratio of overseas production has almost grown by 10 percent every two years: 10.4 percent in 1992; 20.6 percent in 1994; 32.1 percent in 1996; 42.7 percent in 1998; 50.9 percent in 2000; finally 63.6 percent last year.

In particular, Taiwanese businesspeople have transferred most of their IT production bases to China. In 1995, only 14 percent of Taiwan's IT products were manufactured in China. By last year, about 47 percent of Taiwan's IT products were manufactured in China. From 1995 to 2001, the ratio of Taiwanese businesspeople transferring their IT products to be manufactured overseas grew by 35.6 percent. During the same period, the ratio of Taiwanese businesspeople transferring their IT products to be manufactured in China grew by 32.9 percent. Therefore, it can be said that overseas investments by Taiwan's IT industry in the late 1990s took place in China.

To a greater extent, the expansion of Taiwan's IT industry in the world market is due to the increase of Taiwanese businesspeople manufacturing their IT products in China. From 1993 to 2001, the growth rate for Taiwanese IT products manufactured at home was less than 20 percent -- even as low as minus 12.9 percent in 2001 -- and the annual growth rate was 10.7 percent on average. By comparison, from 1996 to 2001, the growth rate for Taiwanese IT products manufactured in China was very fast with an annual growth rate of 35.5 percent on average.

By 2000, Taiwanese businesspeople had already transferred the production of most lower-end IT products to China. After 2000, they quickly transferred the production of advanced notebook computers and liquid crystal display (LCD) monitors to China. In 1999, they only transferred 3.3 percent of notebook computer production and 0.5 percent of LCD monitor production overseas. By last year, these percentages reached 40 percent and 72 percent, respectively. The speed of their transfer is astonishing.

What is more astonishing is that most of the Taiwanese production bases were transferred to China. In 2000, Taiwanese businesspeople did not invest in any production of notebook computers in China. They only transferred 1 percent of LCD production to China. By last year, these percentages increased to 37 percent and 69 percent, respectively. In other words, when the production bases of these two products were transferred overseas, they were almost all transferred to China.

At present, Taiwan has nine IT products that occupy more than half of the world market. In particular, Taiwan occupied 93 percent of the scanner market (2000), 88 percent of the motherboard market (last year), and 74 percent of the power supply market (2000). During the two years in which Taiwanese businesspeople transferred the production of notebook computers to China, the global market share of Taiwan businesses grew from 53 percent in 2000 to 61 percent last year.

In the last seven or eight years, Taiwanese businesspeople's global market share would increase by 0.5 percent each time they increased the ratio of their IT products manufactured in China by 1 percent. Given such remarkable results, no wonder Taiwanese businesspeople keep investing in China. Unless SARS radically destroys China's production systems, Taiwanese businesspeople will keep heading toward China and take advantage of China to expand Taiwan's IT empire.

Tung Chen-yuan is an associate research fellow at National Chengchi University's Institute of International Relations.

Translated by Grace Shaw