Fears that China's growing competitiveness will outpace Taiwan's and leave it and other Asian countries in the lurch are exaggerated and overshadow Taiwan's inherent strengths, according to analysts.
JP Morgan Chase Bank, in its latest "Greater China Perspectives" report, said that Taiwan is benefiting from China's economic development and that fears of "hollowing out" may be overblown.
"China is already the largest market for Taiwan. The pickup in PC demand in China this summer ... has contributed to the stabilization of DRAM prices worldwide," the report said.
Direct investment from Taiwan to China is benefiting exports. In addition, China is a primary supplier of raw materials, the report said.
"If you look at China from afar, you feel like `oh my God, the monster is coming' and you feel scared. But if you really dig deeper, it's not as threatening as you thought," Joan Zheng, a co-author of the report, said.
In a recent report, Goldman Sachs also discussed "greater China."
"The popular view is that China could take over a substantial portion of the world's manufacturing production, and there are significant fears about the ability of China's trading partners to compete," the report said.
Concerns that China threatens manufacturing because of its growing share of developed markets may be misleading, the report said.
"Far from taking over high value-added manufacturing industries, China is still very specialized in labor-intensive exports, and a large importer of higher-end goods and natural resources," the report said.
While China has risen as a low-cost industrial producer, the report said that there was little evidence that it has hollowed out manufacturing in Asia or elsewhere.
"Developed countries have long since abandoned the low-end manufacturing sectors ..." the report said.
"People in Taiwan are so worried that they tend to forget their own strengths," Zheng said.
JP Morgan cites a competitiveness survey carried out by the Market Intelligence Center that found Taiwan's IT sector had outstripped those of South Korea and Japan in price, flexibility, delivery lead time, logistics and time to market.
The local IT sector "possesses all the ingredients to benefit from the global outsourcing trend, as well as to attract sophisticated investments by US, European and Japanese companies," the report said.
Easy access to cutting-edge technology and talent, a relatively mature capital market and a venture capital culture and entrepreneurial spirit were also mentioned in the report as being among Taiwan's strengths.
"Taiwan sources components worldwide, spends 26 hours putting together a notebook computer and then fills over 98 percent of orders worldwide within one week. In China, the process would take much longer," the report said.
The government has long espoused the dangers of investing too heavily in China for fear of becoming too economically dependent on its rival.
The JP Morgan report said Taiwan's shift of manufacturing activity to China is improving earnings and spurring exports, which rose 9 percent in June from a year earlier to US$11.26 billion, bolstered by an increase in the amount of parts sent to Taiwanese factories in China.
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