China remains world factory despite outbreak
Ninelu Tu, Taipei; Willis Ke, DIGITIMES

The coronavirus outbreak is expected to drive many manufacturers, especially those in the electronics sector, to accelerate production relocation from China and rearrange their capacity globalization deployments, but China will remain a global manufacturing powerhouse with unrivalled advantages, including huge domestic demand.

In the wake of the US-China trade rows and the epidemic, many Taiwanese firms with manufacturing operations in China have become determined that they should move some production back home or Southeast Asia to diversify risks.

But still many other Taiwanese makers are increasing investments in China, especially building new plants in central and western China, seeking to capitalize on policy incentives and abundant talent there to better serve Chinese clients.

Many researchers now expect China's GDP growth to reach only 5.5% in 2020 due to impacts of the virus epidemic, but its status as the world's second largest economy and most populous country with enormous domestic demand will still attract large sums of investments.

Production localization - a trend ganing momentum among vendors - will still motivate firms to incease their production capacity in China.

5G business opportunities

The 5G commercialization is set to usher in immense business opportunities for related segments including handsets, base stations, cloud servers and new energy vehicles in the China market, and even China's traditional auto industry is believed to bring new crucial opportunities for components makers.

For instance, high-tier connectors will be increasingly demanded to meet high-frequency, high-speed and high-power transmission requirements for 5G and automotive applications, and Taiwanese makers will be in pole position to benefit as their Chinese peers are only technically capable of manufacturing lower-end connectors for general PC, notebook or handset applications.

Meanwhile, China's policy support to bolster upgrades and transformations of its local industries is also creating significant business opportunities for Taiwan's makers of automated and smart manufacturing equipment.

Besides huge domestic market demand, a series of tax, land and manpower supply incentives offered by the governments of central and western Chinese cities are also attracting supply chain players, especially those gradually losing competitiveness in their operations in coastal cities, to extend their investment reach to the inner land areas. Moreover, investors there can also more easily land orders from Chinese brand vendors.

With their plants increasingly incorporating automated and smart production systems, manufacturing enterprises now set eyes on the availability of sufficient higher-end technical talent produced locally.

Supporting shipments to Southeast Asia

Furthermore, while many manufacturers have relocated their production in China to Southeast Asia to support shipments to the US amid the US-China trade tensions, some others are also mulling increasing production capacity in China to support shipments to Southeast Asia and even other Asia Pacific areas.

The ever-expanding supply chains in Southeast Asia will significantly stimulate economic growth and consumer demand in the regional markets, but the overall supply capacity there alone will be unable to support shipments to the US and the region simultaneously.

Taiwanese investors in China can also choose to set up new production capacity in Taiwan, but such a choice has its limitation. As Taiwan is now not a member of either CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership or RCEP (Regional Comprehensive Economic Partnership), Taiwan-sourced shipments to Southeast Asia, Northeast Asia and other Asia Pacific areas cannot enjoy the same preferential tariffs applicable to shipments originated from China, the sources indicated.

Accordingly, as China boasts distinct investment advantages not paralleled by any other parts of the world, it will remain a top destination for investments.

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