As their competitors increase their investments in mainland China, Via Technologies Inc. and Asustek Computer Inc. remain on the sidelines, waiting for Taiwan's government to make its next move.
After submitting revised drafts of their applications to move ahead with investments in China, Via and Asustek can only wait until the Investment Commission meets again in several weeks and hope the government is in a more accepting mood.
Since the commission rejected applications submitted by the companies last month, Taiwan's electronics industry has been struggling to interpret the action. Widespread grumbling has been tempered by concerns that vocal criticism could offend government officials, which has created a mute opposition whose passivity may invite the kind of restrictive policies that the industry hopes to avoid, according to analysts here.
Indeed, every one of Taiwan's corporate citizens understands one basic rule: "Do not embarrass the government," said analyst Tony Tseng of Merrill Lynch Taiwan Ltd., Taipei.
While prudence reigns, a few leading electronics companies have been willing to speak up, making it clear they are concerned about how the government has handled the thorny issue of investment in China.
"This is dangerous," warned Hander Chang, a spokesman for Hsinchu's Winbond Electronics Corp., a major Taiwanese DRAM merchant market supplier that also makes memory chips for Toshiba Corp. "Taiwan's advantages in production could be eroded."
Policy or aberration?
It remains to be seen whether the government's decision to block Via's and Asustek's mainland expansion plans is an anomaly or a prelude to a formal policy that could see greater restrictions placed on cross-strait investments. In denying the applications, the government said Asustek's planned $25 million investment would have brought its total spending in the mainland to more than $80 million in the last two years, which was deemed excessive. In Via's case, the Investment Commission cited allegations the company had improperly used capital that was approved for marketing purposes to build commercial properties in China.
Officially, the government maintains it wants to loosen restrictions, though the growing number of companies interested in outsourcing to China would argue otherwise. "We don't know what direction the government wants the electronics industry to go," Chang said.
Whether a formal policy is drafted, and regardless of what form it takes, there is a consensus within the industry that China is vital for future growth.
"China has obvious advantages in terms of its labor force, consumer market, and engineering resources," Merrill Lynch's Tseng said.
Henry Wang, a spokesman for computer maker Acer Inc., agreed that Taiwan's renown as a low-cost manufacturing center is being diluted by China's growing electronics industry. China's wages are about one-fifth those of Taiwan, according to Nomura Securities, Taipei, although manufacturing savings are harder to quantify.
"You can't be competitive if you manufacture PC and information technology products in Taiwan. We think the government should ease the restrictions right away," Wang said, warning of the possibility that "in the long term, the government's policy will undermine the competitiveness of Taiwan's electronics industry."
Even those who hold reservations about operating in China accept its necessity. An executive at Quanta Computer Inc. said he harbors a personal preference for Taiwan's labor pool.
Still, Quanta knows which way the wind is blowing. "Our customers asked us to go there because it's close to where the market is," the executive said. Quanta, the world's largest notebook PC supplier in terms of shipments, late last month opened a motherboard plant near Shanghai capable of producing 60,000 units a month. The company's monthly output in Taiwan is 400,000 pieces.
The Shanghai plant is an example of the legerdemain to which Taiwan companies will resort to get around government restrictions. While Quanta claims its factory is a motherboard plant, last week a company executive on the mainland confirmed it's also intended for laptop production, an industry the Taiwan government prohibits from being exported to China.
In fact, a number of industry leaders believe it will not be a question of whether the government will prevent companies from doing business in China, but whether business will be conducted openly or under the table.
"If the government wants to control its businessmen, it may very well not work out. They will find a way to survive," the Quanta executive said.