Tue, Jul 31, 2001 page18

• Dell criticizes Taiwan for lack of links with China

  SIGNS OF ALIENATION The US computer retailer has said that Taiwan's refusal to set up trade ties with the region's biggest market will impede its becoming an Asia-Pacific procurement center

  • NY TIMES NEWS SERVICE
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  In a sign that Taiwan's political standoff with China is starting to alienate its corporate customers, Dell Computer has criticized the reluctance of the authorities on Taiwan to establish direct trade and transportation ties with the China.

  Max Fang, Dell's senior representative in Taipei, told senior economic and trade officials last week, "How can you expect to be an Asia-Pacific procurement center if you are isolated from the biggest market in the region?"

  

  Dell computers are ready to be shipped from the Round Rock, Texas plant in this December 1999 file photo.

  PHOTO: BLOOMBERG

  President Chen Shui-bian (陳水扁) has been under increasing pressure from industrialists to establish direct links with China. But this is the first time that a foreign company has joined in the call.

  Dell, based in Austin, Texas, is no ordinary foreign company. It is the largest buyer of laptop computers from Taiwan's suppliers, ordering 3.5 million to 4 million machines this year.

  Taiwan has built its economy over the last two decades by becoming the subcontractor of choice for the global computer industry. Companies there make 53 percent of the world's laptops and 25 percent of desktop PCs. Most are sold under American brand names like Compaq, Gateway and Dell.

  "Dell is just looking for the best way to do business," said Horace Tsiang, the head of First International Computer (大眾電腦), a PC maker in Taipei. "They've been the price leader; they want to stay the price leader."

  As if to underline its point, Dell moved its top procurement executive to Hong Kong earlier this year. The executive, Robert Shanks, said he wanted to be closer to plants in China, most of them owned by Taiwan companies, that manufacture Dell desktop and laptop computers.

  "The lack of a direct flight between Taipei and Shanghai is a big disadvantage," said Shanks, who scouted Taipei before settling in Hong Kong. "They will lose out over time if they don't change the situation."

  The political gulf between Taipei and Beijing means that travelers from Taiwan to China must go through Hong Kong. That turns a 90-minute hop into an all-day trip. Similarly, components made in factories in China must be routed through Hong Kong, on their way to Taiwan.

  Officials in Taipei acknowledge that direct trade and transportation links with China are inevitable. The question is when, and the answer depends on political rather than economic calculations.

  China is eager for such links, expecting that this will stimulate its economy and accelerate the integration of Taiwan and China.

  But the Chinese leaders, who call Taiwan a renegade province, insist that Chen recognize a single China, governed in Beijing.

  When Chen in January authorized trade and transportation between China and two outlying islands, Beijing dismissed this as an empty gesture. Chen is reluctant to make a grander gesture to Beijing, feeling that the communist officials have scarcely acknowledged his existence.

  "If the PRC is willing to talk to us, the links can happen," said John Deng (登振中), vice chairman of the Mainland Affairs Council. "If they stick to their current position, they won't happen."

  For the last few months, Deng has been making the rounds of Taiwan and foreign technology companies, listening to their concerns about relations across the Taiwan Strait. Friday, he had lunch with Fang of Dell.

  "Dell is our customer and we treasure that relationship," Deng said. "But on the issue of direct links, I think we recognize that there are some things we can control, and other things we cannot control."

  Within two weeks, Deng said, Taiwan will relax its restrictions on trade with China to allow cargo shipped from the south China city of Xiamen to be unloaded in southern Taiwan, transferred to Taipei airport, and exported to the US or Europe by plane.

  The rules are aimed at foreign computer companies, which use air shipments for components that are needed quickly in their home markets. Deng said routing air cargo through Taipei instead of Chinese airports would save two days.

  Direct flights are a thornier issue, he said, because they involve granting landing rights to flag carriers.

  Dell executives show little patience for the diplomatic nuances. They are laboring in a fiercely competitive industry, during an economic downturn, when extracting the lowest prices from contractors is critical.

  "Nobody talks about communism versus capitalism," Tsiang of First International Computer said. "They just think of where they can get the lowest cost."

  The risk for Taiwan, he said, is that it will lose not just low-end manufacturing, which is gravitating toward the cheap labor market in China, but research and development. Companies might prefer to keep such operations on Taiwan, but their bosses are put off by the roundabout trip across the Taiwan Strait.

  Shanks of Dell would not say how much of the company's manufacturing is done in Chinese factories. But companies like First International are building plants near Shanghai to produce laptop computers. Already, the bulk of scanners, and half the disk drives, sold by Taiwan companies are made in China.

  "We're migrating more and more to China," Shanks said. "The soft economy may be accelerating that."

  Dell's decision to put its procurement headquarters in Hong Kong is a little triumph for the city, a special administrative region of China and until 1997 a British crown colony. But it may be a fleeting one. Shanks said that Dell had set up offices in other cities, including Shanghai, where much of the investment in technology is flowing. As Shanghai becomes even more of a technology magnet, Shanks said he could foresee relocating from Hong Kong.

  "This is business, so we don't let emotion get in the way," he said.
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