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Friday, 7 June, 2002, 09:16 GMT 10:16 UK
Taiwan hopes for hi-tech recovery
Worker in Taiwanese semiconductor factory
Taiwan's hi-tech workers face an uncertain future

Taiwan is in recession and the hi-tech sector is in the doldrums. But at the island's annual tech trade fair, Computex, there are first signs of a recovery - though not necessarily to the benefit of Taiwan.
AG Neovo is one of many hi-tech companies in Taiwan looking forward to increased sales over the coming months.

The company, which makes monitors for personal computers at its factory in Taoyuan, expects worldwide orders to grow by up to 80% this year.

Flat screen monitors
Booming demand for flat-screen monitors is boosting the IT industry
Spokesman Kyd Wang said: "The monitor market is one of the hottest around at the moment. I think we will see good growth for the next two to three years because there is huge demand out there."

Other firms displaying their wares at this week's Computex Taipei 2002 exhibition, billed as Asia's largest computer fair, gave similar upbeat predictions for the coming year.

They believe Taiwan's information technology sector, which accounts for about half the island's manufacturing output, will grow this year following a contraction of 9.2% in 2001.

Now for the problems

Factors such as an improvement in the US economy, where many of Taiwan's hi-tech products are sold, are cited as evidence that things are getting better.

The industry has many small businesses that can respond quickly to market changes, and analysts believe it is generally in good shape.

Semiconductor factory in Taiwan
The global economic slump has hurt Taiwanese hi-tech firms
But there are problems ahead.

Cynthia Chyn from the Market Intelligence Centre, a research institute, said: "If you compare the year 2002 with 2001 then of course it will be better because last year the IT sector had negative growth for the first time in Taiwan's history."

And regardless of the ups and downs of the world economy, there are some long-term problems threatening the development of the sector on the island.

Mainland calling

The main one is the migration of Taiwanese high-tech firms to China, where they find cheaper costs and access to a huge booming market.

Many fear this could lead to a hollowing out of the Taiwanese economy.

Ms Chyn said: "The problem is that most of the money made by Taiwanese firms in China stays there to fuel business growth instead of coming back to Taiwan. Money goes out, but it does not come back."

Taiwanese digital camera producer Skanhex Technology is just one firm that has shifted its production to China.

It has a factory employing 600 workers in the southern city of Shenzhen.

Looking for a cheap workforce

The firm buys components from Japan and puts them together in China. Only the company's headquarters, which houses sales, marketing and research, is in Taiwan.

Spokesman Kenzo Tseng said: "This is a typical way of doing business for Taiwanese companies right now. We take orders in Taiwan, but do the work in China because China can supply a cheaper workforce."

This problem has not escaped the government's attention.

Taiwanese hi-tech fair Computex 2002
Computex 2002 could mark the turning point for Taiwan's economy
To combat the situation, officials limit the amount of Taiwanese investment in China, but following pressure from business leaders, some of these restrictions have been eased.

The government recently announced it would allow chipmakers to set up a number of eight-inch wafer plants on the mainland if companies meet certain conditions.

Previously the government also tried to stimulate investment in Taiwan by providing local firms with such things as tax incentives and subsidies.

But this will be more difficult to do now Taiwan is a member of the World Trade Organisation, whose rules require the island to provide a level playing field for both Taiwanese and international firms.

Yet more emphasis on hi-tech

One of the things the government is trying to do is encourage the development of more advanced high-tech products in Taiwan.

This puts the emphasis on specialist skills rather than cheap costs, one advantage Taiwan believes it has over China.

But with so much money pouring into China, Taiwan might not be able to attract the investment needed for such projects, especially as more advanced IT products require increasing amounts of cash.

And, in any case, this policy might not be enough to stop many firms moving to China.

AG Neovo is currently building a second factory to cope with the expected increase in demand for its monitors - but it is in Shanghai.

The future, it seems, is brighter for individual Taiwanese hi-tech firms than it is for the sector as a whole on the island.

See also:

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