11.09.2001
Easing of China investment restrictions good for exporters

• It will be easier for Taiwanese companies to invest in China following the Mainland Affairs Council (MAC) announcement about relaxing restrictions. We expect this to lead to an increase in mainland-bound investment and an improvement in the competitiveness and profitability of Taiwanese electronics product exporters.

• With “unofficial” PRC investments believed to be well above the US$19bn reported by the MAC, there’s no doubt that previous regulations had been circumvented. And just because the MAC is taking a more constructive posture does not mean that all investors who have invested under the table will seek amnesty and report their investments now. The advantages are well known. Taiwan companies producing labor intensive consumer products are unable to survive without low-cost PRC production facilities. And margins for notebook PCs produced in Chinese factories are as much as 3 percentage points higher than units produced in Taiwan. However, it is somewhat more difficult for listed Taiwan companies to circumvent investment caps and restrictions, including outright bans on production of certain products, notably upstream petrochemical products, notebook PCs and semiconductors. So until now, we believe that most listed Taiwan electronics exporters haven’t been able to take advantage of mainland production economies as much as they would have liked.