Most people would be surprised to learn that petrochemical refining and processing contributed one-third of the value of Taiwan's industrial output last year. Even high technology companies rely on the industry for two vital raw materials- acrylonitrile butadiene styrene (ABS) and polystyrene (PS).
Will the "glory days" ever return?
In the 1970s, ROC president Chiang Ching-kuo was the driving force behind the promotion of the petrochemical industry, and by the 1980s the industry was fully mature, producing a full range of plastics from raw materials. Petrochemicals became a cornerstone of industry, and made possible Taiwan's economic miracle.
That's why it's a pity that Taiwan's petrochemical industry saw no growth in the 1990s, except perhaps for the construction of Formosa Plastics' sixth naphtha cracker. Talking about the economic development for the next ten years, the government has drafted many blueprints and grand schemes, but none of them include the petrochemical industry.
Taiwan's petrochemical companies have but one option-if they can move, they should relocate to China. If they stay in Taiwan, they must change the very nature of their operations. For example, Ho Tung Chemical has experimented with the production of specialty plastics, even cement, and it has invested in Sintek Photronics for the production of color filters for that company's TFT-LCDs. Along with banks and other companies it has co-invested in the launch of Vita Genomics because the outlook for biotechnology is strong.
Should we let China adopt our industry?
Taiwan is a small island with lots of people, but limited natural resources. To survive, the petrochemical industry must globalize. Beginning in 1993, Ho Tung Chemical made its first investment in China. We have had a happy relationship with the state-run China Petrochemical Corporation, and by the end of this year we will complete another factory there, which will be the world's largest producer of laundry soap powder.
Currently, China leads in demand for petrochemical products. In fact, suppliers cannot make enough to satisfy demand no matter how much production is stepped up. The dollar value of the China market is far in excess of that of Taiwan. Still, Ho Tung Chemical continues to invest in plant facilities in Taiwan.
The migration of Taiwan's petrochemical companies to China began with lots of companies making secret, "illegal" investments in plants and facilities there. The effort was individual and uncoordinated, and overall most projects were small in scale. But as this trend continued, and Taiwanese petrochemical companies began making money in China, they soon became a strong industrial group there. Before long, the supply of materials imported from Taiwan couldn't keep up. Therefore, Formosa Plastics' Wang Yung-ching and other Taiwan upstream suppliers of raw materials have fought government policy restricting the relocation of upstream suppliers to the mainland. Yet, officially, the China market remains closed to investment by Formosa Plastics and other Taiwanese refiners.
In 1997, the Chinese government set out favorable investment terms for Taiwanese petrochemical companies. We felt pressured by time because we really wanted this. But there is no longer any hurry. In the past few years, the world's largest petrochemical refiners have already moved into China-there is Exxon in Fuzhou, Shell in Guangdong, and Dow-Union in Tianjin.
Who will be our partner?
Naturally, we want Taiwan's commercial enterprises to be self-sufficient. Twenty-nine of Taiwan's petrochemical companies spanning the upper, middle and lower reaches of the industry, hold regular meetings. "If Formosa Plastics cannot move to China, should we band together and build our own naphtha cracker and develop the capability to become an upstream supplier?" we ask. But a naptha cracker costs NT$40 billion. In seeking loans, it would be impossible to conceal their purpose, and once that was revealed, the project would not be allowed under the current policy restricting investment in China.
What if such investments are never allowed? Then within three years, Taiwan businesses had better seek out foreign partners as their material suppliers. Wouldn't that be equivalent to being adopted by another family? Then, before long, we would become cogs in someone else's machine, and not a source of strength for our own industries.
Taiwan's future depends on a competitive strategy based on an international perspective. Government and the private sector must work together. I hope the government will see the petrochemical industry as a means of expanding the nation's economic vitality, as an important link, instead of ignoring our needs and letting us fade into extinction.
