The Reaction from Taiwan

Douglas Tong Hsu (President of Far Eastern Textiles)

Mainland China has made textiles their top priority and this is easy to understand. For a developing country wanting to earn foreign currency, textile production is ideal. The technology is simple and the return on investment is relatively quick. However, the textile market now is extremely competitive, and restrictions and import quotas are much more widespread.

At present we do compete with them in the middle and downscale markets. Their strongest selling point now is price. With quality, colors, production technique, management and design, they still have a way to go. We must do what they can't, and upgrade our products and production techniques.

Indirect trade is done with a touch of fear. The mainland is not a free trade area, and one can't estimate its potential from a simple market survey. Access to the market can be cut off at the drop of a hat. People prefer to sell them their surplus production, as a last resort.

I feel what should concern us isn't so much direct competition or indirect trade, but more indirect effects, such as how the cheap cotton they sell to South Korea will make Korean goods cheaper than ours.

Another problem here is the lack of coordination between enterprises. The various units in the production process only care about themselves. Factories sell to whatever export outlet will give them a high price, while export outlets only look for cheap prices when seeking suppliers. You rarely see a close customer-supplier relationship. This is the primary reason why we've been unable to upgrade the level of our economy and the value and quality of our products. If we solved this question, we would pull far in front of not only the mainland, Indonesia and Malaysia, but South Korea and Singapore as well.

Weng Ta-ming (Chairman of E. Hsin International Corp.)

Although some labor-intensive industries may be threatened, the mainland still lacks the means to produce semi-finished goods, which gives manufacturers here the opportunity to do indirect trade. Also, because the mainland buys goods from Singapore and South Korea, this means that those two countries' old markets are now vacant. Anyway, a new market is always good news.

Many people express concern about indirect trade. I feel that besides the political instability, finding a middleman can be a problem too. Many don't know what they're doing. They hear something through the grapevine, come to Taiwan to place orders, and later find out what they heard was only a rumor. I think many bad debts involving trade with the mainland are the fault of middlemen.

Ch'en Chin-sheng (Chairman of Taiwan Footwear Manufacturers Association)

Taiwan has been exporting footwear for twenty years, and now is the largest exporter in the world. The mainland has just started, but already one can notice its influence. Last year Taiwan exported US$2.27 billion of shoes, but through the first two quarters of this year, we've been able to export only US$1 billion. Most of this is caused by Hong Kong competitors who have invested in plants on the mainland.

They still lack many important semi-finished materials and have to rely on imports. 90% of the polyvinyl chloride and polyurethane they use comes from Taiwan via Hong Kong. However, the regime can do whatever it likes, and with wages there being next to nothing, in five years at the most they will be at the level where Taiwan is today, putting a great deal of pressure on manufacturers here. We have to take advantage of this period to pick up the pace a bit and put ourselves in a position where they can't catch us.

As a result, some manufacturers here are starting to use real leather. Our association recently sent twenty people to England for a year to train in leather shoe production. Our representatives abroad have linked up with Italian shoemaking schools, asking them to teach us their techniques. The response from manufacturers so far has been quite enthusiastic, and it shows that many companies are more than willing to meet the challenge.

Miao Feng-ch'iang (Chairman of Hsuntung Computers)

The information industry is capital-intensive. Whether it be hardware or software, it takes a huge investment in technology. Add to that the costs involved with product differentiation and market changes, and the management costs they entail, and in the end labor costs amount to a small fraction. So the mainland loses its one area of comparative advantage.

Moreover, the information industry requires sophisticated technology. In the short run, despite foreign investment, the mainland will be able to manufacture only sundry accessories. Catching up with us in this area will take longer than in other industries.

However, on my last trip to Europe, there were people from the mainland studying computers everywhere, and we shouldn't ignore this point. Another threat is that they have copied our Chinese language computers, there's no way we can control them.

Upgrading the economy means further development in many fields where the Republic of China comes up short, such as in chemistry and optics. Maybe the government could take advantage of this period of low inflation and invest some of our foreign currency earnings in these areas.

Finally, we should make every effort to open our economy. In the past thirty years we've pulled ahead of the mainland, and one important reason has been that our economy was far more open than theirs. Now they've opened up their economy a bit, and it's time for us to open ours still wider.

(Mark Halperin)