Historical Perspective
7. R&D arrangements
7.2 Electronic & electrical indirect investment in Mainland China and elsewhere
From 1952 to 2004, Taiwan’s foreign investment in Electronic & Electric Appliances manufacturing mainly focused on Asian countries (excluding Mainland China) under the influence of the “Southward Policy” which Taiwan’s government promoted; the number of cases totalled 690 and the amount of investment US$ 3,722 million. The second area was American countries; with 2,118 cases and investment of US$ 3,637 million, and next came European countries, with 131 cases and investment of US$ 286 million. The other areas are Oceania (31 cases, US＄80 million)
and Africa (10 cases, US$ 4.8 million).
If we observe cases over the last five years, obvious changes appear in investment for Taiwan’s Electronic & Electric Application manufacturing in Mainland China and other countries: On the one hand, Taiwan’s investment cases and amounts reduced year by year except the outward investment in 2001; on the other, investment cases and amounts in Mainland China increased year by year (except cases of investment in 2004) and became twice as many as other areas (see Table 7.2).
Table 7.2: Electronic & Electrical Applications, approved indirect Mainland investment and outward investment in other countries, 1991-2004
Indirect Mainland Investment Outward Investment in other countries
Cases Amount, US$000 Cases Amount US$000
1991-1999 3,268 3,331,570 1,261 2,959,711
2000 343 1,464,775 376 640,414
2001 383 1,254,834 446 1,451,085
2002 789 2,618,684 305 534,998
2003 795 2,330,030 182 279,893
2004 431 3,044,016 187 1,146,752
Total 6,009 14,043,909 2,757 7,012,853
Source: Annual Report of Overseas Chinese and Foreign Investment, Outward Investment and Mainland Investment, Investment Commission, MOEA (2004: 54, 62)
Table 7.3: Electronic & Electrical Applications, approved indirect Mainland investment by Area, 1991-2004
Cases Amount US$000 Cases Amount US$000 Canton Area 2833 4,973,375 Hunan 25 8,478 Fukien Area 454 603,304 Szuchuan 42 46,980
Kwancsi 8 9,667 Hopei 241 465,191
Hainan 13 18,413 Honan 11 4,496
Kiangsu 1859 6,946,893 Shantung 71 145,693 Chekiang 269 637,330 Northeast Region 58 43,038
Hupei 40 53,073 Others 85 87,978
Total 6,009 14,043,909
Source: Annual Report of Overseas Chinese and Foreign Investment, Outward Investment and Mainland Investment, Investment Commission, MOEA (2004: 63-67)
If we examine the distribution of the investment in Taiwan’s Electronic & Electric Appliances manufacturing in Mainland China, the Guangdong and Jiangsu areas are the strongholds where the manufacturing concentrates; the secondary areas are Fujian, Zhejiang and Hebei areas, etc. As for
the distribution of other relevant electronic products in the Mainland China, see Table 7.3.
The degree of dependence on Taiwan’s exportation to China had reached 37.23% by 2004 (see Figure 7.1), and the trade surplus exceeded $50 billion. The estimated amount of Taiwan’s investment in China is more than US$50 billion, which is more than 40% of Taiwan’s total foreign investments.
While the export dependence of Taiwan on China is getting deeper than before on the one hand, the import dependence of China on Taiwan is decreasing on the other hand (Table 7.4). For the Taiwanese electronic components industry in particular, the export dependence was 52.8% in 2004, representing a 2.09 point increase over the previous year.
From Figure 7.2a, the trend in electronic and IT investment in Mainland China is very clear. 1998 is the first turning point and 2001 is another one, with 1998 starting the expansion of IT and 2001 starting a contraction. At the same time, from Figure 7.2b, the production value of electronics and IT has the same trend. This implies that investing in Mainland China did not crowd out the production in Taiwan initially, at least in the electronics and IT area. However, it happened to crowd out the production in Taiwan from 2001.
Figure 7.1: Taiwan’s export dependence on Mainland China
37.23 34.24
29.14
22.25 17.19
16.06 15.04
13.47 13.96
13.24 15.13 15.2
7.22 0 5 10 15 20 25 30 35 40
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 year degree
Source: Shen (2006)
79 Table 7.4: Degree of import/export dependence between Taiwan and Mainland China
Degree of import/export dependence
Export dependence of Taiwan on China
Import dependence of China on Taiwan 2003 2004 +/－ 2003 2004 +/－
The Economic System 34.27 37.21 2.94 11.96 11.54 -0.42 Electronic Components 50.67 52.76 2.09 21.48 22.57 1.09 Manufacture 34.47 37.42 2.95 12.63 12.44 -0.19 Electronic Equipment (Radio,
TV & Communication)
13.06 13.88 0.82 8.56 7.31 -1.25
Source: Shen (2006/3) The Direction of Taiwan’s Industrial Development under the Changing Global Economy and trade，IDB/MOEA
Figure 7.2a: The Structure of Taiwanese Investment in Mainland China, 1995-2004
Figure 7.2b: Production value of Taiwanese industry, divided into 4 sectors, 1986-2004
10.00 15.00 20.00 25.00 30.00 35.00 40.00
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
金屬機械工業 資訊電子工業 化學工業 民生工業
Turning
Point Electronic
& ICT
Metal and Machinery
Chemical Related
Food &
Clothes
Sources: MOEA
Turning Point
0 20 40 60 80 100 120
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Textile Apparel, Clothing & Accessories Paper & Printing Chemical Product Rubber Product Plastic Product Non-metallic Mineral Product Basic Metal Industry Machinery & Equipment Electronic & ICT Transport Equipment Precision & Optical Service
Another set of statistics can show this big trend of Taiwan’s manufacturing stepping west into Mainland China. The proportion of “Accepting Orders in Taiwan and Manufacturing Abroad” rises to almost 40% in 2005 and even exceeds 70% in the ICT industry (see Table 7.5). The percentage of “Accepting Orders in Taiwan and Manufacturing Abroad” keeps creating new historically high records, which makes Taiwan’s trade surplus shrink gradually, and the trade deficit reduce gradually too. This is mainly because Taiwan’s ICT products such as mobile telephones, WLAN equipment, DSL CPE and SOHO Routers, etc. are all regarded as mainly OEM/ODM production items. Taiwan’s manufacturers expand production scale in Mainland China and Southeast Asia in order to lower costs, get closer to markets or benefit from favourable tax policies. However, Taiwan’s authorities can encourage manufacturers to set up their headquarters in Taiwan and accept orders in Taiwan, in this way keeping added value in Taiwan; thus overseas production is only one of the global arrangement strategies.
Table 7.5: Export orders and percentages of “Accepting Orders in Taiwan and Manufacturing Abroad”
Year
Export Orders (US$ 100 million)
Percentage of manufacturing aboard
Total Electronics ICT
1999 1,274.7 12.24 % 9.18% 23.03%
2000 1,534.2 13.28% 8.03% 24.86%
2001 1,357.1 16.69% 13.34% 25.93%
2002 1,509.5 19.28% 15.09% 34.29%
2003 1,700.3 24.03% 20.11% 45.41%
2004 2,150.9 32.12% 29.55% 60.71%
2005 2,563.9 39.88% 37.05% 73.02%
Source：Economic Statistics, MOEA, 2006
Furthermore, when we divide products produced overseas by sector, we see from Figure 7.3 that from 2001 the value has increased quickly. The turning point also matches the one found in Figure 7.2b. In 1995, the percentage of production in Taiwan for information hardware manufacturing still remained 75%, the percentage of investment in overseas production in Mainland China was 14%, and in other foreign countries (mainly in Southeast Asia) was 11%. In 2000, the percentage of production in Mainland China reached 31.3% and 19.6% in other foreign countries, and only 49.1%
production was left in Taiwan. The percentage of Taiwan’s information hardware industry production going abroad (especially to Mainland China) increased year by year, and reached 79.5%
in China and 13.7% in other countries by 2005, with only 6.8% remaining in Taiwan (see Figures 7.4a and 7.4b).
Figure 7.3: Products produced overseas, 1997-2005 (%)
In 1999, the percentages of “power supply” and “casing” among the products of information hardware produced in Mainland China reached over 60%, “motherboard”, “monitor” and “CD Rom/DVD Rom” were around 35%-45%. It is worth noting that the laptop PCs were mainly produced in Taiwan in 2000 (95.8%), however after that, the production percentage of laptop PCs in Mainland China rose rapidly to reach 94% by 2005. The also happened with other information hardware products. For instance, the percentage of “CD Rom/DVD Rom”, and “Digital Camera”
etc. produced in China was over 90%, and “motherboard” and “LCD monitor” also 80% (see Figures 7.5a and 7.5b). These two figures also show the transformation of information hardware products, with some products that show up in Figure 7.5a for 1996-2000 not appearing again in Figure 7.5b, such as LCD monitors, LCM, and digital cameras, etc.
To sum up, the impact of Mainland China on Taiwan’s ICT sectors can be divided into four stages over the past 10 years: i) before 1997, mainly producing in Taiwan; ii) between 1997-2000, both Taiwan and Mainland China expanding; iii) between 2000-2002, expanding in Mainland China and keeping the same size in Taiwan; iv) after 2002, expanding in Mainland China and decreasing in Taiwan.
17.46 19.30
16.66 15.40 19.55 19.28 24.03
32.12 36.90
1.99 0.77 1.95 1.57 2.00 1.91 2.96
20.21
27.55 16.98 18.70
11.93
8.87
14.16 15.09
20.11
29.55
37.05
18.70 18.00 18.91 19.96
26.66
31.41 34.93 39.81
48.10
26.25 31.36
26.71 27.02 31.46 34.29
45.41
60.71
73.01
0 10 20 30 40 50 60 70 80
1997 1998 1999 2000 2001 2002 2003 2004 2005
T o t al Ch em ical
T ex t ile E lect ro n ics
M ach in ery & E quip m en t E lect rical M ach in ery , Sup p lies & E quip m en t ICT p ro duct s
Turning Point
Figure 7.4a: Overseas production by Taiwan’s Information Hardware manufacturing,
Figure 7.4b: Overseas production by Taiwan's Information Hardware manufacturing, 2000-2005
Source: MIC(ICT Country Report)；2006/3
Note：Data are based on the shipment value and exclude the projectors
China
Figure 7.5a: Products produced overseas, 1996-2000
Figure7.5b: Products produced overseas, 2000-2005
References
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Appendix 1: The Establishment, Benefits, and Preferential Measures of