One Year On: Economy - Investing without haste, exercising no partience

As government officials put the final touches on new China investment rules, business leaders in the notebook industry have a message for them: don't bother, we have already gone.

The new government has promised no less than four times since last year to work out a coherent policy on cross-strait investment for the laptop computer and semiconductor industries -- and put off decisions each time.

In recent weeks, policy-makers say they have put together plans from four government agencies in order to finalize a fair set of rules for high-tech players looking to China. But it's too late.

Tired of government foot-dragging on the issue and fearful of the consequences for their companies if they put off the move, Taiwan's notebook industry has already made the leap to China.

The six biggest notebook makers in Taiwan -- Quanta Computer Inc (廣達), Acer Inc (宏電), Compal Electronic Inc (仁寶), Inventec Corp (英業達), Arima Computer Corp (華宇) and First International Computer (大眾) -- have already set up production facilities in China, purportedly to build "bare bone systems," a notebook minus a few chips or other parts.

In reality, officials from some of these firms say their factories are already churning out complete systems there.

Taiwan produced 58 percent of the world's notebook computers last year, surpassing Japan to become No. 1 in the world for the first time ever. Production for these six firms, considered to be the top tier in Taiwan, is estimated to be around 12 million notebook PCs this year.

Government officials regard the industry as vital to Taiwan, and maintain a wary eye on rising unemployment when planning cross-strait trade laws.

But a slowing world economy and the benefits of going to China are putting pressure on firms in Taiwan to move their entire operations. Adding to the notebook industry's woes, foreign firms that source laptops in Taiwan asked companies earlier this year to cut their profit margins by a few percentage points in an effort to "share the pain."

On top of that, the nation's top six notebook makers have watched second- and third-tier competitors from Taiwan move quickly to take market share in China's domestic notebook market.

In a 1999 market share rating, notebook maker Twinhead (倫飛電腦) was named the fifth-best notebook brand name in China, behind only Toshiba, IBM, Chinese brand Legend and Compaq. The company beat out all other firms from Taiwan. Last year, Acer picked up the pace and finished No. 5 in China, but still behind Twinhead, according to market research firm Dataquest.

Still, for top notebook makers such as Quanta Computer, the message was clear. Either move to China and take advantage of lower labor costs, tax incentives and cheap land rents, or watch as the competition blows by.

Earlier this year, Acer Group Chairman Stan Shih (施振榮) voiced his opinion loud and clear, saying it was "unreasonable to expect companies to go against the world trend and give up opportunities for profit on the mainland."

Multinational firms, which normally source laptops from Taiwan, also see Taiwan's slow move toward China as an opportunity to leap in. Toshiba, Japan's largest notebook computer seller and Compal Electronics' biggest customer, finished construction on a notebook manufacturing facility in China two months ago.

The Toshiba plant remains in pilot production, putting out 10,000 to 20,000 notebook computers per month. Once it ramps up, Compal stands to lose a substantial amount of orders.