South Korea observes booming Chaiwan trade closely

The ripple effect of cross-strait rapprochement between Taiwan and China has reached South Korea, where the media recently coined the term Chaiwan (combining China and Taiwan) to describe this emerging phenomenon. Having strong economic and competitive relations with both countries, South Korea’s geographic proximity gives the country a front row seat from which to observe China’s trade preference for Taiwan.

Chinese groups buying Taiwanese goods

The Korea Daily recently reported that the market share of South Korean liquid crystal displays (LCD) in China has dropped dramatically from 46.2 percent in the first quarter of 2008 to 29.7 percent in the same quarter of 2009. During the same period China’s demand for Taiwanese LCD products increased from 35.6 percent to 56.5 percent.

South Korea’s share of China’s markets looks set to drop further as Taiwan plays host to an increasing number of procurement trips by Chinese companies. So far, the Taiwan External Trade Development Council (TAITRA) has arranged nine trade missions for mainland companies seeking to do business with Taiwan’s department stores, and with companies involved in the manufacture of LCD panels, 3C home appliances, light emitting diodes and with the renewable energy sector.

During the most recent trip, the Taipei-based China Economic News Service reported that China’s Guangxi trade mission led by the autonomous region’s chairman Ma Biao placed orders worth US$170 million. Another procurement mission representing eight companies placed orders totaling US$827 million, and will spend an additional US$1.4 billion in the coming year.

The China Video Industry Association has recently purchased US$2 billion dollars-worth of LCD panels. Also, a Chinese delegation from the Chinese LED lighting industry is due to visit Taiwan on June 9th to place an order for 1.4 million street lamps and other LED products. A renewable energy conference to be held in Taipei this August will also present huge business opportunities for the island’s LED industry. In September, an auto parts procurement mission will likely add a further US$738 million in business opportunities.

South Korea feels ripple effect

Some of the increased sales are fed by China’s new policy of promoting “home appliances to the countryside,” where farmers are encouraged to buy Chinese and Taiwanese brands in exchange for a 13 percent government subsidy on low-end television sets and other home appliances. South Korean brands are not included in the subsidy deal, according to the Korean paper.

Another Korean newspaper, the Seoul News, also reported that it is not only small to medium-sized companies that will feel the impact of the emerging Chaiwan phenomenon, larger companies such as Samsung and LG are not immune from worry.

Yet, it is not just South Korea that will feel the effects. A combination of Taiwan’s creative marketing strategies together with China’s vast purchasing power has created a new power-base in the retail sector, which is also being eyed by Japanese, European and American businesses.

Taiwan ups investment in China

In addition to procurement trips, Taiwan is investing more talent and capital in China. According to the Taipei-based China Times, Taiwan’s Uni-President Enterprises recently opened four new 7-Eleven stores in Shanghai. The new stores include an innovative “buffet island” – an instant cooking and frying station resembling a domestic kitchen that is the envy of Japanese convenience stores in China.

Taiwan’s RT-Mart International Ltd., a wholesale grocery warehouse similar to Costco, is also devoting tremendous resources toward RT-Mart China. The company has hired MT Huang from Taiwan’s RT-Mart International as CEO to bring the high level of service in department stores to warehouse stores. Last year, RT-Mart China stores generated US$4.9 billion in revenue. Due to aggressive expansion, it aims to overtake Wal-mart China and French-owned retailer Carrefour China.

With closer ties across the strait, business tactics are also changing. Minister Chen Tien-jy of Taiwan’s Council for Economic Planning and Development urged Taiwanese businesses to change their previous strategy toward China. Since China will replace the US as the largest market for many products, Taiwanese businesses should learn to treat China as a market, and not merely as a factory.

The change in cross-strait relations is also likely to influence where Taiwanese students pursue their studies. Whereas Taiwanese students previously pursued master of business administration (MBA) degrees in the US and Western Europe, they are now turning to China with an eye on the huge potential offered by the Chinese market. Deputy Dean Teng Bing sheng of Cheung Kong Graduate Business School, one the most expensive MBA schools in Shanghai, told The World Journal that although he has not seen many Taiwanese faces at his campus yet, he hopes to see this change by offering preferential treatment to Taiwanese students in order to encourage their enrollment.

Still some concerns

In an editorial last week, Taiwan's United Daily News commented that the combination of China's capital and market together with Taiwan's technology, talent and world-view, is pretty potent. However, Chaiwan does not reflect reality. There are differences and discrepancies both China and Taiwan need to adjust to, and in some cases, overcome. Stable and gradual cross-strait cooperation is welcomed, but rapid change might lead to turmoil and conflict.

The Taiwan concept, according to the United Evening News, is still controversial with both positive and negative aspects. In an age of globalization, it is necessary for industries to cooperate and have division of labor. Taiwan should understand the tangible benefits, and not just happily rely on unrealistic expectations. It is also important for Taiwan to have something in its own control, and not be at the mercy of China.

In the face of the emerging Chaiwan phenomena, the pro-independence Democratic Progressive Party (DPP) is understandably uneasy and concerned. However, the DPP has not been able to present a convincing policy for dealing with China. This remains the most challenging task for the opposition party, according to the China Times. DPP Chairperson Tsai Ing-wen said democracy and human rights are the most cherished values in Taiwan. When dealing with China, President Ma Ying-jeou should not shy awayfrom talking about the absence of democracy and human rights in China.

Ma himself acknowledges the risks in dealing with China. However, the key point is to have sound risk management and control. So the president thinks his administration has done fairly well. Ma agreed with former Vice President Annette Hsiu-lian Lu’s remarks that China is a changed country from the one that witnessed the Tiananmen Square Incident 20 years ago. He said China has become more influential and now subscribes to international norms with respect to anti-proliferation of nuclear weapons and anti-terrorism. China also shares the same or similar views as the U.S. on many international issues. Faced with increasingly close economic interdepedence across the Strait, Taiwan's government can not maintain a closed door policy towards China