We should not underestimate the impact of AU Optronics’ total net loss of NT$13.9 billion (US$484 million), or NT$1.58 per share, in the first quarter of this year. Given the low LCD panel prices worldwide, the poor performance of panel makers in general is understandable. The problem is that South Korea’s LG Display Co (LGD) only suffered a net loss of NT$3 billion in the same period. The earnings of AU Optronics were NT$93.2 billion, while LGD earned NT$143.3 billion. That means that the loss accounts for 14.9 percent of AU Optronics’ earnings, while LGD’s loss accounts for only 2.1 percent of its earnings. There is a gap of 12.8 percentage points between these two numbers. What is the cause of the huge gap between their operational performance?
Technology, management, scale and other factors have all contributed to the gap. However, the key factor is that LGD enjoys an exchange rate bonus, while AU Optronics does not. This can be explained by the rise and fall of the South Korean won and the New Taiwan dollar after the financial crisis in 2008. The US dollar was trading at 936 won before the crisis and 1095.7 won in late March this year, so the won had depreciated by 17.06 percent during that period. However, the NT dollar appreciated from NT$32.4 to NT$29.4 against the US dollar, or 9.26 percent. Since the won fell by 17.06 percent while the NT dollar rose by 9.26 percent, a gap of 26.32 percentage points separated the two currencies in comparison with the US dollar.
If we assume that the “competitive bonus” makes up half the actual depreciation, LGD enjoys a competitive bonus of 13.24 percentage points over international competitors — the main competitor being Taiwan — which roughly corresponds to the gap of 12.8 percentage points between AU Optronics’ and LGD’s operational performance. In other words, the greatest difficulty confronting the Taiwanese panel industry is the exchange rate handicap enjoyed by its competitors.
There are, of course, several factors that can affect operational performance, but the exchange rate is a major problem for the Taiwanese panel industry, as the nation’s two biggest competitors — China and South Korea — are both adopting a low exchange-rate policy.
Some wonder why Taiwanese companies don’t complain if that really is the case. The answer involves cross-strait relations and a company’s business plans. If a Taiwanese company wants to build an eighth-generation LCD panel plant in China, they need to invest US$4 billion. If the NT dollar appreciates by 10 percent, the Taiwanese company would save NT$12.8 billion on that investment.
The problem is that if no one says anything while the NT dollar continues to appreciate and people instead continue to invest in China, thus enjoying the positive exchange rate with the Chinese yuan, will Taiwan’s economy still have a future? Where will the public look for jobs? Will Taiwanese companies use this as an opportunity to abuse local workers? These issues were the focus of the anti-poverty demonstrations on Workers’ Day this year.
The administration of President Ma Ying-jeou (馬英九) seems to be attempting to raise Taiwan’s GDP per capita to US$20,000 this year by letting the NT dollar appreciate against the US dollar. However, this policy allows Taiwanese companies to exploit local workers. Even if the government were to reach its goal, what would that really mean?