Taiwanese carmakers are upbeat about the signing of a proposed economic cooperation framework agreement (ECFA) with China, saying the pact would help them tap the massive market across the Taiwan Strait.
The ECFA pact could mean zero tariffs for the import and export of automobiles and components for both sides, greatly boosting business competitiveness, they said.
Automobiles and components, along with petrochemicals, textiles, panels and machinery, are the five major industries likely to be included in the early harvest list for an ECFA, which is expected to be signed by the middle of next year.
“We are upbeat on the prospect,” said Clayton Lien (連佩斌), CEO of Sheng Jung Motors Co (勝榮汽車), a local distributor of China’s Chery cars.
Taiwanese makers would be able to assemble and produce cars in Taiwan for export to China, with a possible upside in revenues, he said.
The price upside is feasible as Taiwanese manufacturers generally enjoy a good reputation on production quality over their Chinese peers.
“Chinese makers are still lagging behind Taiwanese companies in auto components and industrial quality,” Lien said on Friday. “They are curious and, at the same time, show high regard for ‘made in Taiwan’ products.”
Starting next month, Sheng Jung will start assembling and marketing four models under Chery Automobile Ltd (奇瑞汽車) — the second Chinese auto brand to make official inroads into Taiwan.
The cars are 35 percent produced locally and the percentage could rise to more than 50 percent in the second half of next year, he said.
As part of Sheng Jung’s plan, the vehicles would be sold in Taiwan and also exported to China, Europe and the US.
Bigger rival Yulon Motor Co (裕隆汽車) is also hoping to benefit from an ECFA.
The company officially debuted its “Tobe” cars at the Taipei International Auto Show on Friday. Viewed as the first Chinese car to be brought into Taiwan, the “Tobe” is a revamped model based on the “Panda” cars produced by Geely Automobile Holdings Ltd (吉利汽車).
“Lower tariffs would be better for both sides as the partnership grows,” Yulon Tobe Motor Co (裕隆酷比汽車) president Hsu Kuo-hsing (許國興) said.
The two firms are already thinking about the next step, with Yulon assembling Tobe cars in Taiwan then exporting them to China, Hsu said.
Based on the fact that Geely sells 300,000 vehicles in China each year — equivalent to the total market size in Taiwan — it gives Yulon tremendous potential for growth, he said.
China overtook the US this year as the world’s largest auto market, as sales soared after Beijing rolled out a series of incentives to stimulate consumer spending at the height of the global downturn.
Despite a production of 500,000 cars per year, total car sales this year are expected to hit 280,000 units, automakers said.
As a result, despite the interest shown by Chinese companies participating in the cross-strait talks in Taichung last week in working with Taiwanese automakers, added to Taiwanese auto companies leveraging the marketability of cheaper Chinese-branded cars, the domestic auto market is unlikely to see significant or rapid growth anytime soon.
Moreover, the nation’s smaller auto companies will be particularly vulnerable amid slow sales, Taiwan Ratings Corp (中華信評) said last week.
“Weak domestic car sales are likely to constrain Taiwan-based automakers’ credit quality over the next year as they continue to operate at an unprofitable level,” Taiwan Ratings credit analyst Frank Fan (范維康) said in a report on Wednesday.
Fan said that even if the recently introduced Chinese cars gained market acceptance, they were unlikely to have a substantial effect on market dynamics in Taiwan.
The latest government statistics showed that local car sales rose 22.2 percent year-on-year to 269,700 units as of Dec. 20, mainly on a government-sponsored commodity tax reduction of NT$30,000.
The market has nevertheless been in fast decline since 2005, when sales of new vehicles hit a high of 514,627 units, compared with 229,495 units last year.
Meanwhile, Yulon Group (裕隆企業集團) did not deny a local newspaper report last week that the group, which includes Yulon Motor and China Motor Corp (中華汽車), intends to cut the group’s capital expenses by as much as 30 percent next year from this year’s levels. The Chinese-language Economic Daily News reported on Friday that the move indicated Yulon’s pessimistic outlook for car demand next year in Taiwan.
ADDITIONAL REPORTING BY KEVIN CHEN
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