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Mainland-Taiwan pact helps automakers
00:00 UTC+8 March 22, 2012
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THE highly anticipated economic agreement between Chinese mainland and Taiwan was signed in June 2010, five years after initial discussions began. Under the pact, the mainland reduced tariffs on more than 500 imported items across 10 categories at the start of 2011. These included agricultural, chemical, mechanical and electronic products, auto parts and textiles. The list of categories was called the "early harvest."
Following the signing of the agreement, Taiwan opened up its auto sector and parts of its flagship technology industry to investments from the mainland. Local carmakers in both mainland and Taiwan have since taken the opportunity to grow their businesses.
Yulon Motor, the largest auto manufacturer in Taiwan, set up a joint venture with the mainland's Dongfeng Motor at the end of 2010. The joint venture will produce Luxgen brand vehicles, owned and developed by Yulon.
Meanwhile, Geely also formed cooperative links with Yulong and Chery tied up with Taiwan's Sheng Rong Motor, allowing them to take their own brands and products to the Taiwan market. Even some international brands are finding opportunities in the new trade framework, seeking to find synergies between facilities on both sides of the strait.
Due to the significantly different size of auto markets in mainland and Taiwan, Taiwan can benefit more from the deal in terms of overall impact. The huge mainland market means great demand for Taiwanese manufacturers - either component suppliers or carmakers.
With the lowering of tariffs, Taiwan-made parts will be more competitive on the mainland, especially in the advanced automotive electronics, automotive molds and other sectors, thanks to their good value for money. For some products, such as GPS, anti-theft systems and airbag controls, the quality is comparable with some international component giants.
Therefore, these Taiwanese suppliers could help mainland carmakers reduce their dependence on Japanese suppliers for some key components. This is why large component suppliers, such as the Tang Yang and Lio Ho Group, have set up new plants in the mainland.
In the near future, we can expect Taiwanese exports of completely built-up vehicles to the mainland. Once that happens, car manufacturers in Taiwan will get a considerable boost to develop their businesses. Currently, they have the capacity to produce 700,000 to 800,000 completely built units, but local demand in Taiwan ranges from 200,000 to 300,000 units.
Once completely built units are included in the "early harvest" list, the mainland will be able to import up to 2.5 times Taiwan's annual import sales.
Take 2010 as an example, Taiwan exported around 70,000 units that year. However, Taiwan could export up to 170,000 units to the mainland, which will not only raise output by 70 percent but also increase the average utilization rate to more than 50 percent. Meanwhile, mainland manufacturers, attracted by investment incentives in the trade agreement, have taken their own products to Taiwan or are considering doing so.
Although Taiwan auto sales are equal to only 2 percent of the mainland auto market, there is a huge potential in the low-end car market. The density of motorcycles in Taiwan is the highest in the world, with about 14 million motorcycles for a population of 23 million.
Chery and Geely are hoping that by earning a good reputation, they will be able to convert some of those 14 million "motorcycle families" to car owners.
Mainland carmakers also value the advanced technology and strong research and development capability in Taiwan in the area of new energy vehicles, which they hope to develop themselves, accumulating experience and finally applying it to operations on the mainland.
Yulon Motor has successfully developed an electric vehicle based on Geely's Panda model, which was included in the electric vehicle lease program in Taipei beginning in February. Such a trial operation should also provide rich experience and a benchmark for Geely.
Another key factor is that mainland carmakers view Taiwan as an entry to the global market. Geely once said that Taiwan could become an export base for Geely because companies there have richer overseas marketing experience.
Following the signing of the agreement, Taiwan opened up its auto sector and parts of its flagship technology industry to investments from the mainland. Local carmakers in both mainland and Taiwan have since taken the opportunity to grow their businesses.
Yulon Motor, the largest auto manufacturer in Taiwan, set up a joint venture with the mainland's Dongfeng Motor at the end of 2010. The joint venture will produce Luxgen brand vehicles, owned and developed by Yulon.
Meanwhile, Geely also formed cooperative links with Yulong and Chery tied up with Taiwan's Sheng Rong Motor, allowing them to take their own brands and products to the Taiwan market. Even some international brands are finding opportunities in the new trade framework, seeking to find synergies between facilities on both sides of the strait.
Due to the significantly different size of auto markets in mainland and Taiwan, Taiwan can benefit more from the deal in terms of overall impact. The huge mainland market means great demand for Taiwanese manufacturers - either component suppliers or carmakers.
With the lowering of tariffs, Taiwan-made parts will be more competitive on the mainland, especially in the advanced automotive electronics, automotive molds and other sectors, thanks to their good value for money. For some products, such as GPS, anti-theft systems and airbag controls, the quality is comparable with some international component giants.
Therefore, these Taiwanese suppliers could help mainland carmakers reduce their dependence on Japanese suppliers for some key components. This is why large component suppliers, such as the Tang Yang and Lio Ho Group, have set up new plants in the mainland.
In the near future, we can expect Taiwanese exports of completely built-up vehicles to the mainland. Once that happens, car manufacturers in Taiwan will get a considerable boost to develop their businesses. Currently, they have the capacity to produce 700,000 to 800,000 completely built units, but local demand in Taiwan ranges from 200,000 to 300,000 units.
Once completely built units are included in the "early harvest" list, the mainland will be able to import up to 2.5 times Taiwan's annual import sales.
Take 2010 as an example, Taiwan exported around 70,000 units that year. However, Taiwan could export up to 170,000 units to the mainland, which will not only raise output by 70 percent but also increase the average utilization rate to more than 50 percent. Meanwhile, mainland manufacturers, attracted by investment incentives in the trade agreement, have taken their own products to Taiwan or are considering doing so.
Although Taiwan auto sales are equal to only 2 percent of the mainland auto market, there is a huge potential in the low-end car market. The density of motorcycles in Taiwan is the highest in the world, with about 14 million motorcycles for a population of 23 million.
Chery and Geely are hoping that by earning a good reputation, they will be able to convert some of those 14 million "motorcycle families" to car owners.
Mainland carmakers also value the advanced technology and strong research and development capability in Taiwan in the area of new energy vehicles, which they hope to develop themselves, accumulating experience and finally applying it to operations on the mainland.
Yulon Motor has successfully developed an electric vehicle based on Geely's Panda model, which was included in the electric vehicle lease program in Taipei beginning in February. Such a trial operation should also provide rich experience and a benchmark for Geely.
Another key factor is that mainland carmakers view Taiwan as an entry to the global market. Geely once said that Taiwan could become an export base for Geely because companies there have richer overseas marketing experience.
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