The Ministry of Economic Affairs last week said that flat-panel display exports have declined for the last three three years, dropping to US$15.89 billion last year. The market share of Taiwanese producers in the Chinese market also fell last year behind rivals South Korea for the fifth consecutive year.
The ministry said the results pose challenges for local flat-panel makers due to growing competition from their Chinese and South Korean counterparts. The ministry also warned that a potential free-trade deal between Beijing and Seoul could further hurt the nation’s standing in the Chinese market.
The ministry made a valid point: Taiwanese producers need to improve their competitiveness because China remained the nation’s biggest export destination for flat panels last year, accounting for 88.5 percent of total outbound shipments.
Competition with South Korea in overseas markets may be an old story, but Taiwanese producers’ falling market share in China has added a new element of risk to the flat-panel industry’s outlook. A preferential deal on market access, especially a free-trade deal between Beijing and Seoul, could mean more trouble ahead for our manufacturers.
However, a real challenge is the ambition of Chinese producers to upgrade their technology by wooing Taiwanese staff with better salaries. Beijing has also demonstrated a strong tendency toward protectionism since the 2008 global financial crisis, with Taiwanese firms being the latest victim of Beijing’s policies to nurture its own technology industries. China also tends to lure foreign companies with the promise of access to its large market potential in exchange for the transfer of technology.
Taiwan’s integrated circuit industry is entering a boom, and companies in this industry, including MediaTek, are eyeing the Chinese market as a potential source of rapid growth. However, they could be the next victim of China’s industrial policies, because Beijing has reportedly decided to set up an equity investment fund worth 30 billion yuan (US$4.8 billion) to develop the so-called “indigenous industries,” including its fledging domestic Integrated Chip (IC) design and chip packaging industries.
When the Chinese government uses state resources and power to nurture its technology industries, it means that there is not a level playing field for foreign companies, including those from Taiwan, and it means severe competition due to disrupted market mechanisms.
Beijing’s support for domestic industries through government subsidies and preferential tax breaks has led to excessive production and price declines. Flat-panel companies faced this problem before, so did producers in the solar power and LED backlight industries, and so will the IC industry in the near future. Then, why does our government continue favoring China over other countries? Does its attitude toward China bring more benefits to local industries or harm? A more critical question is: Does embracing China mean a move toward globalization or a dead end for businesses?
Taiwan’s development under President Ma Ying-jeou’s (馬英九) leadership demonstrates that the economic relationship between Taiwan and China is more like that between competitors than partners. The Chinese Nationalist Party (KMT) government’s “win-win” strategy has not benefited most companies, but has only led to an over-dependence by the nation’s firms on the Chinese market. The question is: Does their survival in China mean an ability to compete internationally?
Ma’s administration does not shed light on this question. If the government has not had sufficient time to comprehend the negative implications of its China policy for domestic manufacturers, it should stop saying embracing China is tantamount to going global and it should not push for more deals with China that will only hollow out Taiwan’s industrial base and lead outflows of talented Taiwanese.
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