Jul 21, 2009
The growing tie-ups between China and Taiwan, dubbed "Chaiwan" by some, look set to alter the balance of power in the technology sweepstakes in north Asia, hurting Korean companies in the business but likely boosting their Japanese rivals.
The ultimate winner, though, could be China as the realignment brings to the country what it has long craved — advanced technologies and production facilities in the mainland.
South Korea, which competes fiercely with Taiwan in many areas including memory chips and flat screens, is at the greatest risk of losing its standing in China, as Taiwan emerges as the leading supplier to the world’s third-largest economy.
But it could be good news for Japanese players which have long partnered with Taiwan to outsource production of electronics components.
"The impact of ’Chaiwan’ in the region will be greater on South Korea than Japan because Korea’s trade patterns with China are similar to Taiwan’s," said Kim Min-jung, an analyst at Hyundai Research Institute in Seoul.
China is the biggest market for both Taiwan and South Korea, two export-dependent manufacturing centres for tech products.
"The combination of China’s funds and Taiwan’s technology will weaken Korea’s competitiveness in technology and products," Kim added.
Price competition and lack of networks have been traditional challenges to foreign brands operating in China, but politics is now adding to their woes as China tries to curry favour with Taiwan by opening its market wider to cross-strait exchanges.
China is already sending delegations of buyers to Taiwan for computers, flat screens and chemicals, and may lower tariffs on Taiwanese goods through a proposed trade pact next year. And Taiwan was preparing to allow a range of investments by the Chinese for the first time from May, as ties with Beijing thaw under a year-old China-friendly Taiwan administration.
Investors are giving the thumbs up to the warming of ties between the once implacable foes.
"Our top picks are Taiwanese technology companies that have bigger exposure in China," said Jerry Lee, a fund manager at Yuanta Securities Investment Trust in Taipei, who counts flat-screen makers AU Optronics Corp. and Chi Mei Optoelectronics among his top picks.
China’s 1.3 billion population with growing consumption power is a promised land for Taiwanese firms, which enjoy the advantage of sharing the same culture and language.
"Since China is a big story, we can’t ignore their competitiveness there in the longer term," said Lee, who manages a T$4 billion ($122 million) Asia-Pacific growth fund for Yuanta.
Early beneficiaries of the changing relationship are Taiwan’s flat-screen makers, whose combined share in China rose to 57 percent in the first quarter from 36 percent a year earlier, as Taiwanese suppliers built up ties with mainland TV brands.
In the same period, South Korean panel makers Samsung Electronics and LG Display saw their share in China’s LCD market fall to 30 percent from 46 percent.
For Japan, which has largely moved out of commodity components, Taiwan provides outsourcing that enable Japanese semiconductor firms to focus on premium products and cut costs.
Elpida Memory, staving off bigger Korean rivals Samsung and Hynix, is using ties with Taiwan’s United Microelectronics Corp. to tap Chinese production sites.
Even in LCD, Japanese TV brands such as Sony and Panasonic are seen benefiting from having sizeable Taiwan supply than becoming too dependent on Korean panel makers, whose TV units are direct rivals of Japanese brands.
The fierce competition among the region’s giants is expected to benefit China.
Makers are increasingly willing to build plants using cutting-edge technologies in China to win consumers there, while in the past they only allowed assembly and other low-tech works.
Hynix, the world’s No. 2 memory chip maker, for example, maintains its top position in China with a more than 40 percent market share thanks to its strong production base there.
"We are the only DRAM maker, apart from foundries, that has advanced 12-inch wafer facility in China," Hynix spokesman Park Hyun said. "Our market share is a result of aggressive marketing and having an entire production cycle in China."
And Sharp, Japan’s only major LCD maker, is in talks with local partners in China to jointly produce screens while LG Display also said last week it was seriously considering building a Chinese panel-manufacturing plant.
If cross-strait ties continue to improve, Taiwan’s government may also lift a ban on producing LCD panels in China.
"Taiwanese makers are still nervous about passing on advanced technologies to China. But China will aggressively push for its own LCD plants," said Jonathan Hwang at Daewoo Securities.
"Everyone is considering China investment if you’re an LCD maker," LG Display CFO James Jeong said. "We’ll find a way to get around the issue of protecting our latest technology."
[Source: EETimes / By: Rhee So-eui and Baker Li]
Source:TAITRA