After a U-turn by the government, the Ministry of Economic Affairs allowed politics to outweigh common sense and on Dec. 17 approved AU Optronics Corp’s plan to build a US$3 billion 7.5-generation flat-panel plant in China. The approval will have a huge impact on Taiwanese industry.
To get the case approved, the company promised to invest NT$550 billion (US$18.6 billion) in Taiwan by 2022, including two 11th-generation flat-panel plants and three solar cell plants, and to create 5,000 new jobs over the next 10 years. It also pledged not to lay off domestic workers as a result of its Chinese investment, but academics still worry that AU Optronics’ move to China is likely to cause the whole supply chain to move there.
These concerns are not groundless. Past experience shows that every time an industry has been allowed to enter China, that decision has been the beginning of its domestic decline. Take notebook computers for example: Taiwan used to be the world’s largest laptop maker, but since the ban on investing in China was lifted, most manufacturers have relocated there. However, their gross profit margin has not improved and many local job opportunities have disappeared. The main reason for this is that Taiwan’s high-tech industry focuses mainly on original equipment manufacturing (OEM) and does little in the way of research, development or innovation.
The reason for relocating to China is the lower labor, rent and land costs and various preferential measures, instead of developing a leading brand or boosting added value. The cruel reality is that OEM operations can be easily duplicated, so once Chinese businesses get started, Taiwanese enterprises lose their advantage and may even be replaced.
Furthermore, the main advantages of Taiwan’s OEM manufacturers is that the complete supply chain from upstream to downstream creates a strong “cluster effect,” which promotes competitiveness. Once the leading business moves out, the related product supply chain inevitably moves with it. This has been seen repeatedly as industries have relocated to China.
In particular, when key industries such as wafer or flat-panel plants relocate, it will have an incalculable impact on local business. Financial Supervisory Commission statistics show that Taiwan’s listed companies had remitted about NT$1.886 trillion (US$60.8 billion) to China by the third quarter of this year. They have also invested about NT$156.3 billion there so far this year, the highest figure in 11 years. AU Optronics plans to invest NT$100 billion. The resulting investments from other companies this investment will cause will likely be greater than any previous case.
Moreover, the AU Optronics case highlights the complete failure of the government’s pro-China policy. It has repeatedly claimed that the Economic Cooperation Framework Agreement (ECFA) will bring Chinese capital to Taiwan and Taiwanese businesspeople will then flow back, creating a “golden decade” by setting up research and development and operations headquarters here. This is not true. The ECFA is China’s main strategy for economically annexing Taiwan.
For example, China could offer Taiwan small favors in exchange for significant gains. Our government’s “Greater China ideology” is bringing Taiwan toward eventual unification. It signed the ECFA to lean more toward China, ignoring expert economic analysis and national interests, and is thus falling into Beijing’s trap without even knowing it.