Taiwan: An Invasion of Mainland Products

WTO entry will sharply boost imports from China

Tsang Yu-fang wants her Tsingtao beer. Tsang's family runs a small Shanghai-style restaurant in Yungho, a suburb of Taipei, and began selling China's Tsingtao in April, when it first became available on the island. The reaction from patrons was enthusiastic; the restaurant sold out its supply within days. Now Tsang frets that customers will be angry. "When are you going to get us more?" she demands of her distributor, who says it could take a week. Not soon enough, Tsang storms. "How am I going to make money?"

Tsingtao beer is only one of the most visible Chinese products making its way to Taiwan these days. The strict regulations that kept some 4,000 mainland-made products out of Taiwan--and gave the island a fat $16 billion trade surplus with China last year--are falling by the wayside.

With both China and Taiwan now in the World Trade Organization, the government of Taiwan President Chen Shui-bian is being forced to ease regulations. As a result, it will soon be possible for consumers in Taiwan to buy everything from Chinese-made washing machines to cold-rolled steel. Chen's administration is also making it easier for mainlanders to invest in Taiwan real estate. And to alleviate a drought, some Taiwan-controlled islands in the Straits are importing water from the mainland.

Even without the stimulus of WTO, imports of Chinese goods have been increasing over the past four years, from $3.9 billion in 1997 to $5.9 billion in 2001. True, mainland exports are still dwarfed by goods going the other way; Taiwan shipments to the mainland of everything from toys to notebook computers are worth $22 billion a year. But the trade gap is expected to narrow quickly.

This new China-Taiwan commerce is being driven largely by the mounting cost pressures on Taiwan companies, which carry relatively high labor costs. For Taiwan companies, it is also a way to offer new products without having to invest in R&D. Thus Sampo Corp., a leading maker of white goods, recently formed a partnership with its Chinese counterpart, Haier Group. This summer, Sampo will start selling Haier washing machines and refrigerators to Taiwan consumers under the Sampo name. "We can widen our product range very quickly," says Sampo President and CEO H.C. Ho. Sampo expects to sell $50 million worth of Haier products annually by 2005. Taiwan Kolin Co., Sampo's biggest rival, has signed a deal with a Chinese partner, too.

Such relationships are likely to proliferate, predicts Ho. "After Taiwan and China's accession to the WTO, there is no choice," he says. Because WTO rules make it easier for all foreign companies to sell in Taiwan, locals will have to pool their resources with mainlanders to survive the competition. "Just a few companies can get profits," says Ho. "If we can have an alliance, then we can both have a chance."

Selling to Taiwan's consumers is just as important for Chinese companies, especially manufacturers of consumer electronics and white goods. They have been suffering from a crippling price war in their home market and are eager to expand overseas. Unlike other markets that China is targeting, such as the U.S. or India, Taiwan has a culture and consumer base that are soothingly familiar. "Chinese companies are licking their chops at getting to sell to a culturally familiar market where incomes are so much higher," says Michael Kurtz, Asia strategist at Bear, Stearns, & Co. in Hong Kong.

Now that the floodgates are opening, pressure is building for Taipei to throw off the remaining obstacles to free trade. Peter Tsai, deputy general manager of Taiwan Tsing Beer Corp., the importer of Tsingtao beer, points out that imports have to ship via the Japanese port of Okinawa, because Taipei still bans most direct shipments.

Opposition politicians are prodding Chen's government to remove the final barriers to Chinese goods. But Chen is holding back--not just for ideological reasons, but also to protect local farmers and small manufacturers.

Eventually, direct links will be forged, and restaurateur Tsang will get her Tsingtao faster. But that won't solve her immediate problem. Outside the restaurant, beneath a new Tsingtao sign, hangs a notice informing customers that there's no Tsingtao. "Sold out in the whole province," the sign reads, then adds optimistically: "Next week more supply." Like others who are eager for the freest possible trade with China, Tsang's customers will have to be patient a little longer.

By Bruce Einhorn in Yungho

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