Taiwanese Exports Making Major Inroads in Emerging Markets

With shipment growth to the Chinese market slowing down and that to developed markets stagnating, Taiwanese exporters are discovering new avenues for export growth in emerging markets other than China.

Taiwan's exports to the mainland Chinese/Hong Kong market grew 9.5% year-on-year to US$62.6 billion in the first eight months of 2007, 40% of its overall export figure. The total included US$37.76 billion for the mainland Chinese market and US$24.8 billion for Hong Kong, though the bulk of the latter is mainly for transshipment to China. During the same period, imports from the two areas to Taiwan reached US$19.2 billion, leaving a huge imbalance of US$43.4 billion in Taiwan's favor, triple the island's overall trade surplus of US$14.2 billion.

In the Jan.-August period, Taiwanese exports to the U.S. dipped 2.7% to US$20.9 billion and exports to Japan slipped 0.5% to US$10.5 billion, while shipment to the original 15 member nations of the European Union rose 10.2% to US$15.4 billion.

One main reason for the slowdown of exports to mainland China and Hong Kong is the macroeconomic control policies of the Chinese government, which is slowing the development of the Chinese auto industry and thus demand for Taiwanese machine tools.

Shipments of Taiwanese machinery and mechanical appliances to the market remained flat, amounting to US$5.4 billion, in the first eight months, including US$815 million for machine tools, 37.3% of Taiwan's total machine-tool exports of US$2.2 billion, compared with over 50% several years ago.

Taiwanese machine-tool makers are facing an even gloomier outlook in the Chinese market next year as China in March raised the technological bar for free-tariff treatment of imported machine tools and forging and casting equipment. Industry insiders estimate that two-thirds of Taiwanese machine tools will not be able to meet the new standards and will have to pay a tariff and value-added tax totaling 30%.

Booming Trade to Vietnam

Fortunately, Taiwanese exporters have been making major inroads in emerging markets other than China this year, especially for industrial materials and machinery equipment, enabling the island's overall exports to grow by 8% to US$156.5 billion, in the Jan.-August period.

Vietnam has emerged a star overseas market for Taiwanese goods, as Taiwanese exports to that country jumped 28.6% to US$4.2 billion in the first eight months this year, making it the seventh largest overseas market for Taiwanese exporters, up from ninth place in 2006.

During the period, shipments of mineral fuels and mineral oils from Taiwan to Vietnam leapt 37% to US$1.18 billion, to become the largest export category, followed by machinery and mechanical appliances, up 10.6% to US$362 million; iron and steel, soaring 101% to US$316 million; and plastics products, up 33.4% to US$314.6 million.

Vigorous growth of Taiwanese export to Vietnam has been stimulated by a rush among Taiwanese manufacturers to invest in that country following its accession to the World Trade Organization (WTO) this January. As a WTO member, Vietnam is exempt from textile-quota restrictions and enjoys most-favored-nation status on exports to other WTO member countries. As of April 2007, accumulated Taiwanese investments in Vietnam topped US$8 billion, or US$12 billion after including indirect investments made through third countries, making Taiwan the largest foreign investment source in that country.

In August, Hon Hai Precision, a leading manufacturer in Taiwan, inaugurated two plants, with a total investment of US$160 million, in Bac Ninh Province, near Hanoi. The plant produces camera modules, motherboards, and connectors. Hon Hai plans to invest US$5 billion and employ 300,000 persons in Vietnam eventually.

Formosa Chemicals and Fiber Corp., under the Formosa Plastics Group, is investing US$300 million in integrated nylon production facilities in Vietnam, joining the group's existing integrated polyester production line there, which has a price tag of US$600 million.

E-United Group is investing US$1 billion in building a blast-furnace steel mill in Vietnam. It will be the largest such mill in Southeast Asia, and the first in Vietnam, with a projected annual capacity of three million metric tons. The plant is scheduled to begin operation in 2010.

Many Taiwanese IT (information technology) firms also are setting up manufacturing facilities in Vietnam, joining Taiwanese investors of textile, footwear, and plastic products, in part to tap fast expanding domestic demand there. Ho Chi Minh City, for example, plans to invest US$2.5 billion by 2010 to expand internet use among businesses, government agencies, communities and schools.

Bright Prospects in India

India is another bright spot on Taiwan's trade map. Capitalizing on India's booming economy, Taiwanese exports to that country shot up 66.4% to US$1.57 billion in the Jan.-Aug. period, ranking India at 18th place among Taiwan's overseas markets.

Partly due to the strong demand among Indian automakers and auto-parts makers, exports of Taiwanese machinery and mechanical appliances to the market leapt 30% to US$267 million in the period to become the largest category of Taiwan exports to that market. Other top export categories were mineral fuels and mineral oils, skyrocketing 421% to US$252 million; plastic products, up 48% to US$241 million; electrical machinery and home appliances, up 85.4% to US$221 million; organic chemicals, up 68.6% to US$187 million; and iron and steel, soaring 225.5% to US$109.7 million.

The brisk export growth is also partially attributed to mounting Taiwanese investment in that country. Hon Hai Precision launched its first plant for printed circuit boards, cellphone components, and connectors in Chennai, capital of the Tamil Nadu state, as part of its US$1 billion project to build a high-tech park there. In mid-2007, Hon Hai signed a letter of intent with the Indian government to erect a similar facility in Sriperumdur at a cost of US$1 billion.

Middle East Rising

Taiwanese exporters are also cashing in on surging purchasing power of Middle East countries, enabling Taiwanese exports to the Middle East and Near East jumping 30% to US$3.7 billion in the first eight months.

Shipment to the United Arab Emirates (UAE) leapt 37.9% to US$1.04 billion, making it Taiwan's 21st largest overseas market. Exports of Taiwanese machinery and mechanical appliances to the UAE advanced 4.5% to US$187 million to become the largest export item. Other major export categories were electrical machinery and home appliances, down 11.4% to US$178 million; mineral fuels and mineral oil, skyrocketing 443% to US$136 million; iron and steel, up 259.3% to US$132.5 million; and plastic products, rising 74.6% to US$128.7 million.

Turkey was Taiwan's second largest market in the region, ranking 23rd place overall, in the period. Taiwanese exports to the market jumped 23.9% to US$955 million, with shipments of machinery and mechanical, the top export category, rising 19% to US$265.6 million. Exports of electrical machinery and home appliances fell 13.9% to US$180 million, plastic products rose 161.8% to US$155 million, and iron and steel jumped 168.6% to US$96 million.

Saudi Arabia was Taiwan's third largest market in the region, ranking 30th place overall, in the first eight months. Taiwanese exports to the market jumped 59% to US$ 510.7 million, with iron and steel topping the export list, soaring 189% to US$158 million, followed by plastic products, up 101% to US$87 million; machinery and mechanical appliances, up 15% to US$59 million; electrical machinery and home appliances, up 9% to US$35.8 million; and auto parts, up 14.6% to US$28 million.

Eastern Europe

Taiwan's exports to the fast-developing East European market also made solid gains in the first eight months of the year, rising 28.2% to reach US$2.6 billion. The rise is driven in part to Taiwan's increasing investment in the region.

Taiwanese exports to Hungary, the first Eastern European nation to embrace a market economy, jumped 56.6% to US$511.5 million in the January to August period, ranking it 29th place among all of Taiwan's trade partners. Shipments of electrical machinery and home appliances soared 188.6% to US$428.7 million, optical products and medical instruments fell 73% to US$35 million, machinery and mechanical appliances increased by 4% to US$27 million, and auto parts inched up 2% to US$6.4 million.

Exports to Poland also rose a respectable 28% to US464.7 million. The largest export category was electrical machinery and home appliances, advancing 17.5% to US$175.4 million; followed by machinery and mechanical appliances, up 2.9% to US$66.6 million; optical products and medical instruments, up 18% to US$55.6 million; iron and steel, skyrocketing 584% to US$37.9 million; auto parts, up 40.4% to US$30.7 million; iron and steel products, up 57% to US$23 million; and tools and kitchen implements, up 52.3% to US$16.5 million.

South America

Taiwanese exports to South America scored moderate gains of 10% to US$1.9 billion in the eight-month period. Exports to Mexico racked up extraordinary 43% growth to US$958.8 million, ranking that country 22nd place among Taiwan's trade partners. Shipments of electrical machinery and home appliances, the largest category, shot up 105% to US$446.6 million; followed by machinery and mechanical appliances, up 6.7% to US$93.6 million; auto parts, up 12.7% to US$49 million; and iron and steel, up 12.7% to US$44.5 million.

Taiwan's exports to Brazil only gained 2.8% to US$927.4 million in the period, ranking the country 25th among Taiwan's trade partners. However, some export categories scored extraordinary growth, including machinery and mechanical appliances, jumping 41.5% to US$175 million; plastic products, rising 39% to US$94 million; iron and steel, shooting up 156% to US$36.9 million; and iron and steel products, jumping 108% to US$35.9 million.

Taiwan's exports to Russia posted a remarkable 38% gain to US$509 million, with the largest item being machinery and mechanical appliances, up 20.7% to US$143.5 million; followed by electrical machinery and home appliances, up 35.6% to US$90.6 million; plastic products, up 38% to US$59 million; iron and steel, soaring 118.7% to US$47.3 million; iron and steel products, up 20.8% to US$27 million; auto parts, jumping 63% to US$23 million; and tools and kitchen implements, up 80% to US$17.7 million.