China surpassed Taiwan as the top market for semiconductors in the Asia-Pacific region (excluding Japan) for the first time in 2000, according to US market research firm Dataquest. And although the statistics might add fuel to fears in Taiwan of a high-tech industry exodus to China, industry analysts say the shift is good for Taiwan.
"China's [semiconductor] market grew 35 percent last year, surpassing Taiwan's to become the leader in the [Asia-Pacific] region," said Ben Lee, analyst at Dataquest.
The Japanese market grew 33 percent to US$50.4 billion, while the Asia-Pacific region, which includes East and Southeast Asia to India as well as Australia and New Zealand, grew 35 percent to US$56.9 billion, according to Dataquest.
Taiwan previously held the top spot in the Asia Pacific based on the massive amount of semiconductors purchased for use in PCs, notebooks and other information technology products made here and sold overseas.
In 2000, Taiwan dropped to second place in the region with 30 percent growth, followed by South Korea and Singapore.
According to Lee, Dataquest saw years ago that China would pass Taiwan due to the sheer size of its market. The firm expects China to sustain its lead for the next five years and says WTO entry will accelerate the growth of the nation's semiconductor market.
Growth in China's chip market last year was paced by demand for consumer electronics like microwave ovens and television sets. Personal computers and communications equipment came in as other big areas of chip consumption. China's telecommunications infrastructure projects and growing mobile telecommunications networks also require vast amounts of semiconductors.
But analysts hailed China's growth as a boon for Taiwan's chipmakers, pointing out that 84 percent of the microchips China needs must be imported from abroad.
"China does not produce a whole lot of its own semiconductors," said Doug Lee, a semiconductor analyst for Goldman Sachs in Hong Kong, "so growth in the semiconductor market in China is very good for Taiwan."
Taiwan's two top semiconductor manufacturers combined, Taiwan Semiconductor Manufacturing (TSMC,
The local semiconductor industry in Taiwan is also building to meet growing demand from China. Taiwan led Asia in semiconductor equipment and materials purchases last year, absorbing 25 percent of all equipment sales. Dataquest expects a repeat performance in 2001, as Taiwanese firms upgrade equipment and expand production.
The only barriers to China's market are the 17 percent tax levied against semiconductor importers and potential political troubles between Taipei and Beijing.
Goldman Sachs' Lee also pointed out that a number of semiconductor plants are currently under construction in China.
Although they won't come online until 2002 or 2003, they "will pose more competition than Taiwan sees today," he said.
Another analyst, however, sees Taiwan maintaining its dominance in the regional semiconductor industry for a long time to come.
"I don't see China as a threat to the Taiwanese semiconductor industry," said Dan Heyler, semiconductor analyst for Merrill Lynch in Taipei. "China still lacks the necessary skills in semiconductor design and semiconductor manufacturing."
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