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.
We are firmly opposed to the signing of the ECFA with an enemy that is aiming to annex Taiwan and that has already attracted large numbers of Taiwanese businesses. Now that it has been signed, Taiwanese industry will be like a frog in hot water. While they think everything is nice and comfortable, China is turning up the heat and they will gradually lose the chance to escape and will die in the pot.
Since President Ma Ying-jeou (馬英九) insisted on signing the ECFA, he should have striven for greater room for industrial -development to remedy the disaster brought by this flawed policy. AU Optronics must invest in China partly because the flat-panel sector is not on the early-harvest list. China will become the world’s largest LCD TV market starting next year and it has both bargaining chips and negotiation skills. For example, it has constantly threatened to raise tariffs for LCD panels and has already approved the licenses allowing investments by AU Optronics’ two major South Korean competitors. Taiwanese businesses find themselves in a dilemma and must advance further, or lose this key battle.
In other words, AU Optronics’ Chinese investment is the choice of an individual enterprise, but it is also a result of the government’s improper pro-China policy and a negative effect of the ECFA. The government has promised that once the ECFA comes into effect next year, Chinese capital and enterprises will come. According to the government’s statistics, Taiwanese investment in China has reached US$94.1 billion since 1991, but Chinese investments in Taiwan between July last year and October this year was a mere US$120 million, highlighting a serious imbalance. AU Optronics’ US$3 billion Chinese investment plan will perpetuate this imbalance.
If further applications for building more wafer and flat-panel plants in China are proposed in the future, Taiwan’s industry and economy may be unable to withstand the impact.
TRANSLATED BY EDDY CHANG
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