Magazine article Management Today

A Bonanza from the Old Entry

Magazine article Management Today

A Bonanza from the Old Entry

Article excerpt

Taiwan, for 40 years one of the most staunchly anti-communist conntries, is now having to face the uncomfortable fact that its economy is becoming hooked on China. This year has seen a dramatic twisting of the island's US$120 billion a year foreign trade away from traditional markets in north America towards China and other neighbours.

After a week performance (by its own standards) last year when export growth dropped from 9% to 2%, and the economy expanded only 5.29, the government is confident of a new burst of growth averaging 6% for the next five years. It recently raised its forecast for this year to 7%.

Exports have reached new monthly highs in the last three months in a row, topping US$7 billion for July. Over the first seven months, exports have surged by 14.5% from last year to US$43 billion and imports have also risen 14% to US$36.3 billion. Its overall trade surplus so far this year is up is up nearly 9% at US$6.92 billion.

However, a closer look at the figures reveals that the surplus with the US is down by over 20% this year, and exports to the Chinese mainland are rocketing on the back of China's own export boom. Indirect trade with China has soared from virtually nothing five years ago to US$4.04 billion last year, and is expected to top US$5 billion this year. Taiwanese companies escaping rising labour costs and ever-stricter pollution controls at home have invested more than US$2 billion in China in the last three years.

Much to Taipei's consternation, the island has thus become a major source of machine tools, electrical and electronic components, textiles and upstream plastic raw materials to Chinese exporters, even though direct trade is still banned. But Taiwanese companies are also positioning themselves to gain from China's expanding domestic market, particularly for consumer goods, motor cycles and processed foods. Faced with increasing pressure from powerful industrial groups, Taipei is likely to open up direct trade across the Taiwan Strait in the next two to three years.

Exports will support strong economic growth over the next few years, and many European companies are looking at forming joint ventures with Taiwanese partners to tap the Chinese market.

In addition, the island's dynamic economy will be boosted by the government's massive public spending plans, and there are opportunities for British companies that are sufficiently aggressive.

The Six Year National Development Plan, which officially got under way on July 1, calles for the spending of no less than US$303 billion on improving the country's transport infrastructure, power generation, communications, sanitorial and leisure facilities.

Boasting the world's second largest pile of foreign exchange reserves at more than US$73 billion, little foreign debt and a top-notch credit rating, Taiwan should have no problem funding its ambitious plan. The Anglo-Taiwan Trade Committee (ATTC), Britain's semi-official representative office in Taipei, sees a host of direct business opportunities for British companies in the Plan. These include rolling stock, signalling and other railway equipment, power generation, waste water treatment and other pollution control technology, and heavy and light precision engineering and construction. …

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