Mon, Jan 01, 2018 - Page 6 News List

EDITORIAL: Factories face uncertainty in China

Many Taiwanese manufacturers that have built production bases in China to export goods to other parts of the world face uncertainty after the cities of Kunshan in Jiangsu Province and Zhuhai in Guangdong Province last week reportedly demanded that manufacturers reduce or halt production in a bid to deal with water and air pollution.

The effects appear significant. In Kunshan alone, there are up to 270 companies that could be affected by the city government’s order, with nearly 50 percent of these companies being Taiwanese. Those in industries that consume more energy and have higher pollution and emission levels are expected to be affected first.

While the cities’ decisions were later denied by local authorities or put on hold, Taiwanese manufacturers need to give serious consideration to the extent to which they could upgrade their manufacturing facilities to address environmental issues. They must also prepare for more punitive measures from China in case on-site investigations become more frequent under Beijing’s increasingly strict standards for reducing pollution and emissions.

Moreover, as China attempts to move up the global manufacturing supply chain and authorities have pushed deleveraging the economy and tightened pollution controls after the Chinese Communist Party’s 19th National Congress, Taiwanese companies operating there are facing more challenges. The bottom line is that they might need to reconsider their operations in China.

China’s policy to suspend or shut down certain manufacturing facilities under its anti-pollution drive could lead to greater consolidation among surviving firms in many industries ranging from steel, coal and cement, to textile, paper and electronics, which is likely to result in supply-chain disruptions and cause a steep increase in prices, said Dezan Shira & Associates, a consultancy for foreign investors in Asia.

For Taiwanese manufacturers, that also means those with limited financial resources will find it hard to upgrade their production lines and equipment, so they might have to exit the industry or relocate to India, Vietnam or other Southeast Asian countries, the Taiwan Electrical and Electronic Manufacturers’ Association has said.

However, challenges exist in other nations as well. Education quality and urban infrastructure remain issues that need to be addressed in Southeast Asia, while the demand for better environmental protection has also been on the rise.

Some people have suggested that returning to Taiwan could bring jobs back home, but not all businesses are suited to making the move in light of tighter environmental regulations in Taiwan and its shortage of water, electricity, land and skilled labor.

When China is no longer the world’s factory and when the world’s second-largest economy aims to climb the value ladder, it is a wake-up call for Taiwanese manufacturers. While a global economic recovery has benefited Taiwan’s export-oriented manufacturers, their pursuit of a cheap production base will ultimately face rising operating expenses like land and labor, so they must change their mindset to focus on research and development, and value-added products.

Tighter pollution regulations in China certainly pose a challenge to Taiwanese manufacturers, but it also offers an opportunity to rethink how they should position themselves in the global value chain. Regardless of where they are based, pushing innovation and upgrades in production is what will ensure manufacturers’ sustainable growth in the long term.

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