The Ministry of Economic Affairs on Tuesday announced it would continue to relax the restrictions on investments in China by local flat-panel makers. Under the new policy, firms such as AU Optronics and Chimei Innolux will be able to apply for a permit to buy a stake in or merge with their Chinese counterparts, as well as invest in Chinese fabs using the same level of technology they currently employ in Taiwan.
The ministry said the liberalization would enable local manufacturers to compete with their global rivals on an equal footing in China to take advantage of the Chinese market’s business potential. With this move, the ministry would have people (including businesses) believe that the government is not inhibiting business investment, but rather helping it.
However, the truth is that local flat-panel makers have been asking for greater relaxation since February last year, when the government first lifted bans on their China-bound investments. Manufacturers were calling on the government to drop the so-called “N-1” policy, which required flat-panel makers to employ technology in their Chinese fabs that was at least one generation behind that of its Taiwan fabs, while they nervously watched their South Korean rivals gaining ground in the LCD TV market in China, operating under no such restriction.
It looks like the government was finally able to take the pulse of the nation’s flat-panel industry with the latest policy, and to the local companies, the move is better late than never. Unfortunately, we have seen the government’s industry policy regarding investment in China swing between two extremes — forbidding and relaxing — through the years depending on the whim of political sentiment.
So the question remains, does the government have a long-term and far-sighted policy to meet the needs of industry?
We have seen only a government that is reactive rather than proactive to the needs of the local technology sector and a government that cannot provide a forward-looking blueprint for industrial development. It is always catching up to the needs of businesses and offering a patchwork of belated measures to specific industry sectors — some measures for the semiconductor sector here, some for the flat-panel sector there and others for the petrochemical sector.
It is clear that the government’s biggest problem is its persistent incompetence in outlining a policy for the development of the high-tech sector. How will it tackle future challenges as other local technology heavyweights seek permission to invest in China?
The relaxation of the investment policy also opens the door to the possibility of job losses and the loss of the nation’s edge in technology, as the whole supply chain could relocate as suppliers mirror the moves by the benchmark players.
Even though all applications for investment in China must be reviewed on a case-by-case basis and local companies are still subject to certain conditions in order to start their Chinese fabs with the same generation of technology that they use in Taiwan, both the government and businesses need to learn a hard lesson from the relocation of the local notebook computer manufacturing sector to China during the past decade.
Taiwanese companies face a dilemma: They can move overseas to pursue cheaper production costs or face losing their competitiveness. However, without sufficient investment in brand building, innovative design and research and development, overseas manufacturing, in China or anywhere else, does not guarantee sustainable profitability and growth.
In the long run, moving overseas only guarantees one thing: a low-margin business.
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