IT woes push economic policy to forefront

Dec 22, 2015

Economic and industrial strategies have taken center stage in Taiwan’s presidential race, as the island’s information technology companies struggle to compete with Chinese and South Korean rivals.

Terry Gou, chairman of Hon Hai Precision Industry -- the world’s largest electronics contract manufacturer, better known as Foxconn -- on Dec. 1 called on ruling and opposition parties to form a bipartisan economic team. He stressed that Taiwan cannot afford to wait until after the election, scheduled for January, to make plans to cope in 2016.

For the current year, Taiwan’s Directorate General of Budget, Accounting and Statistics has downgraded the local economy’s growth outlook several times. The latest forecast puts the growth rate at above 1% -- the first figure under 2% since Taiwan’s economy slipped into negative growth in 2009, following the global financial crisis.

The main culprit is the slowdown of the domestic IT industry. The smartphone market is losing momentum, while PC and TV sales have been sluggish for some time now. Moreover, shipment volumes and prices of semiconductors and liquid crystal display panels -- Taiwan’s two key exports -- have been in decline.

A handful of companies, including Foxconn, have managed to withstand the tough conditions so far. Yet Taiwan’s IT sector faces a growing threat from South Korean and Chinese competitors, both in terms of technological sophistication and market share.South Korea’s Samsung Electronics and other rivals have nudged some Taiwanese DRAM chip manufacturers out of the business.

Meanwhile, Chinese LCD panel makers, such as BOE Technology Group, have set up huge plants on the mainland. Analysts expect that the Beijing-based BOE will surpass Taiwan’s AU Optronics for the first time this year in TV panel shipments, becoming the world’s fourth-largest panel maker.

Tech crutch

Taiwan’s economy is heavily reliant on IT, which accounts for about 40% of total export value. The slowdown in the industry has thus triggered a sharp drop in local stock prices and dampened consumer spending.

For years, outgoing President Ma Ying-jeou has argued that Taiwan’s economy leans too much on IT. In 2009, he unveiled plans to promote six emerging industries, including biotechnology and renewable energy, but the initiatives have produced few tangible results.

Eric Chu, chairman of the ruling Nationalist Party, or Kuomintang, and a candidate for president, says he would offer tax relief to offset the costs of cutting-edge research and development, among other measures. But some say he is simply mimicking Ma’s approach. Chu was abruptly chosen as the Kuomintang candidate in mid-October, giving him little time to prepare for the race.

By contrast, Tsai Ing-wen, chair of the opposition Democratic Progressive Party, has been plotting her run since she lost to Ma in the previous presidential poll in 2012. Her party is known for favoring independence from China.

Tsai has laid out specific policies for promoting new industries, including a plan to create a science park dedicated to renewable energy research in the southern city of Tainan. She has also urged businesses to step up innovation and create more sophisticated products.

     TVBS group, a cable TV station, last Sunday conducted an opinion poll and logged Tsai’s support rate at 45%, with Chu trailing far behind at 22%. The wide gap could be chalked up to the fact that Tsai has put forth a more detailed economic plan.

"Taiwan can no longer match China in mass production based on large investments, among other areas," said Lin Xin-wu, a division director at the Taiwan Institute of Economic Research. "Taiwan’s industry needs to redefine what kind of role it will play in the global marketplace."

Source: Nikkei Asian Review