Mar 20, 2015
Taiwan's machine tool industry said Sunday it is worried about its competitiveness in the face of a recently signed free trade agreement between China and South Korea, unprecedented low interest rates in South Korea, and depreciation of that country's currency.
The industry noted that the Korean won had dropped 2.65% against the US dollar over the past week, while the country's central bank last Thursday slashed the seven-day repurchase rate to 1.75%, cutting it below 2% for the first time.
These factors, coupled with the concessions South Korea will gain under its FTA with China, will squeeze the competitiveness of Taiwan's industrial sector, including machine tool manufacturers, said Goodway Machine Corp chair Edward Yang at a forum.
Other businesses that will be severely affected include producers of petrochemicals, display panels, and semiconductors, said Yang, noting that there is considerable overlap between Taiwanese and South Korean exports.
He said Taiwan's government should avoid overregulation and instead promote policies that would foster growth and development, while the country's central bank needs to pay greater attention to the plight of the private sector.
Like South Korea, Taiwan must lower its interest rates in response to a falling Japanese yen, Yang said.
His views were supported by Hsu Hsiu-tsang, chair of the Taiwan Association of Machinery Industry, who said Taiwanese companies will begin to feel the effects of the weaker South Korean currency in the second half of this year. Taiwan's central bank has been conservative in its decisions compared with the central banks of China and South Korea, Hsu said.
The machine tool sector in Taiwan thinks that the Taiwan dollar ideally should be kept at a rate of between NT$32.5 and NT$33 against the US dollar, he said.
Carl Huang, secretary-general of the Taiwan Machine Tool and Accessory Builders' Association, said however that the effects of the weaker South Korean currency on Taiwan's industrial sector would be negligible, no more than a "paper cut."
The real threat is the continued decline of the Japanese yen, he said, adding that the effects on Taiwan industries would be more like a "gunshot wound."
Huang said companies like Goodway can retain a competitive edge against their South Korean rivals because the Taiwanese brands are highly regarded in the international market for lathes. Other representatives of Taiwanese machine tool companies said that South Korea's market for lathes is backed by strong domestic demand, with about 30% of the products absorbed by the country's automobile industry.
Meanwhile, although Japan's lathe exports to Southeast Asian markets are still more expensive than Taiwan's, the price difference has now shrunk to less than US$1,000 (US$31.60) per unit, while the domestic prices in both countries are similar, according to representatives of Taiwan's machine tool industry.