ASEAN countries last month for the first time overtook China as the second-biggest destination for export orders from Taiwanese manufacturers. Local companies last month received US$10.82 billion in orders from ASEAN members, surpassing China’s US$10.63 billion, according to statistics compiled by the Ministry of Economic Affairs.
However, it would be premature to jump to the conclusion that ASEAN is replacing China as the main pillar of Taiwan’s exports. China is still the world’s second-largest economy and retains its place as the workshop of the world, although its role is fading.
The ministry said that a major European customer of Taiwanese companies started placing orders through its ASEAN subsidiary in March, rather than from its headquarters. This European customer usually makes the largest orders during the fourth quarter, the ministry said.
A jump in orders of intermediate goods was also a factor, as a growing number of Taiwanese manufacturers relocate production lines to ASEAN countries and import semi-finished goods from Taiwan for final assembly, the ministry said. Export orders from the region skyrocketed more than 200 percent and 525 percent year-on-year in September and last month, primarily for information and communications technology products, the ministry said.
Orders from China ended 18 months of decline, rebounding by 1.2 percent annually, due to a lower comparison base last year as a plunging property market and high inflation took their toll on private consumption. Orders were mostly for notebook computers and graphics cards, as well as optical components such as LCD panels, camera lenses and connectors used in mechanical equipment, driven by rising inventory building ahead of new smartphone launches by Apple, Huawei Technologies and Xiaomi.
That shows that although Taiwanese companies are facing mounting pressure from customers to expand capacity outside of China and Taiwan, with an aim to minimize geopolitical risks, most local manufacturers are heavily reliant on their Chinese operations. High-quality labor and low costs are considered China’s major advantages, although labor costs are climbing. Having a complete supply chain in the country also helps.
For Hon Hai Precision Industry Co, China accounts for more than 70 percent of its total capacity, even though it has been diversifying its iPhone assembly line to India, Vietnam, Mexico and the US. Hon Hai said that China still accounted for a large chunk of its annual capital spending. Likewise, power supply manufacturer Lite-On Technology Corp said Vietnam will be its biggest manufacturing hub outside China, but China still makes up about 80 percent of its total output. In the long term, China would still make up at least half of its overall capacity, Lite-On said.
A faltering economy in China has led to weak private consumption and investment, which in turn dealt a blow, directly or indirectly, to local smartphone chip suppliers and memorychip makers. Falling smartphone sales in China have dampened demand for mobile phone chips, while shrinking investment in manufacturing equipment by the private sector has curtailed demand for memory chips.
As global supply chains get shorter, it is foreseeable that Taiwan’s economy would gradually decouple from China, given the trend of shorter and diversifying global supply chains and the rise of India and Vietnam. Most countries are trying to boost supply chain resilience by building domestic supply. However, this would not happen overnight. In the first 10 months of this year, China remained the second-largest market for Taiwanese firms, with export orders totaling US$99.31 billion. ASEAN ranked No. 4 with export orders of US$69.67 billion, behind Europe’s US$78.96 billion. The gap between China and ASEAN is still a formidable one.
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