by CIO Staff

China, Taiwan Fight Won’t Hurt Global Tech Supplies

Mar 01, 20064 mins
Data CenterIT Leadership

A growing dispute between Taiwan and China won’t likely abate soon, but it also won’t hurt global technology supplies, experts said Wednesday.

The most recent flare-up in the often troubled tensions between Taiwan and China came after Taiwan President Chen Shui-bian Monday abolished the island’s National Unification Council, and guidelines that had been put in place years ago to work for eventual reunification with China. The two split in 1949 amid civil war and China has long vowed to attack Taiwan if it declares independence.

On the Chinese side, President Hu Jintao called the dissolution of the council a “dangerous step” toward “Taiwan independence,” according to Xinhua News Agency reports.

China’s Taiwan Affairs Office, the main conduit through which China conducts its Taiwan policies, called the move a serious provocation sure to heighten tensions across the body of water that separates the two, the Taiwan Strait.

“(Chen)’s plan clearly is to abolish the National Unification Council and guidelines to speed up the push toward Taiwan independence,” the office said in a statement on its Web site. The office called on the U.S. to reign in Chen and do its part to maintain regional harmony.

Despite the strong response from China, observers don’t expect the conflict to escalate into a trade war or military confrontation. Taiwan and China account for a huge amount of global technology production, mainly from Taiwanese factories operating in China. In some categories, such as PCs and related components, the majority of the global supply comes from the two places.

The recent events between Taiwan and China have a “zero” chance of hurting trade, said Peter Sutton, head of research at CLSA Asia-Pacific Markets in Taipei. But he warned that tensions could increase because Taiwan’s president needs to prove he’s not a lame-duck after his party lost ground in important December elections. One way for Chen to recapture the limelight is to provoke China, which normally lashes out and threatens the island in response, playing into Chen’s hands.

“But China hasn’t made any threats and their policy of unilaterally opening (trade with Taiwan) will continue,” Sutton said.

In fact, China has already overtaken the U.S. as the world’s leading exporter of IT and communications goods, according to the Paris-based think tank Organization for Economic Co-operation and Development (OECD). China exported US$180 billion worth of IT and communications products in 2004, compared to $149 billion for the U.S. A large portion of China’s technology exports come out of Taiwanese factories operating on the mainland, from companies such as Hon Hai Precision Industry Co. Ltd., the world’s largest contract electronics maker, and Quanta Computer Inc., the biggest notebook PC maker.

Any disruption to the supply of components and goods from China and Taiwan would wreak havoc on global technology markets. Nobody seemed to realize the importance of the region until Sept. 21, 1999, when a massive earthquake hit Taiwan. The technology-heavy Nasdaq fell 3.8 percent in the two days following the temblor, mainly as people began to realize how much the IT industry depended on the island for certain components, including motherboards and graphics chips, of which Taiwan used to supply the majority of the global demand.

The situation has changed a bit since then as some major companies sought second or third locations for component suppliers. Taiwan is still a vital link in the supply chain, mainly due to its semiconductor factories, which still account for a huge amount of graphics chips and, increasingly, DRAM (dynamic-RAM) as well as other chips.

“I don’t think that there is going to be serious impact to trade between Taiwan and China. It’s not in China’s best interest to cut off trade,” said Andrew Yang, an analyst at the Chinese Center for Advanced Policy Studies in Taipei. China is more interested in drawing Taiwan into its fold by making it economically dependent through investment, which has already been substantial. Some estimates place Taiwanese investment in China at around US$200 billion.

Yang added that he does not see any likelihood of increased military tensions, either.

For related coverage, read Indian Outsourcer Satyam Looks to China.

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-Dan Nystedt, IDG News Service