hankyoreh

By Kim Kyeong-rak

The Economic Cooperation Framework Agreement (ECFA) signed Tuesday between China and Taiwan appears likely to have a major impact on South Korean industries. In particular, information technology firms, which have frequently been in competition with Taiwan in the global market, have long been paying close attention to the increasingly close economic cooperation between China and Taiwan. For example, the Samsung Group, which accounts for a major part of the semiconductor, mobile phone, and LCD industries, held a meeting of its chief executives in May on the topic of cross-strait cooperation.

Research organizations such as the Korea Development Bank Research Institute are citing LCD panels, semiconductors, and cell phones as IT products where the level of competition with Taiwan is high. All are leading exports in South Korea. Increased cross-strait trade in the wake of the ECFA’s signing will immediately lessen the tariff burden on Taiwanese IT firms by around 5 percent. As a result, the price competitiveness of South Korean companies in the Chinese market, including Samsung Electronics and LG Economics, will inevitably take a hit.

The blow to South Korean firms will increase in the event that China gives Taiwanese companies fixed accounts as the diminished price competitiveness continues into the long term. In the wake of the 2008 global financial crisis, Taiwanese businesses’ line operation rate fell to less than 50 percent, and operating profits plummeted. This stemmed from the lack of fixed accounts. The fact that South Korean IT businesses are producing their best results in history this year is also in large part due to a reflection effect resulting from Taiwanese competitors’ inability to make additional investments over the past one to two years.

“If Taiwanese companies secure Chinese accounts, stable investment becomes possible even when the economy is in a recession,” said Jang Du-seok, a full-time researcher with the KDB Research Institute. “As they expand the market over the long term, they can rapidly increase market share while maintaining a high rate of return.”

An even bigger threat than Taiwan is the rise of China, which has been soaking up advanced technology like a sponge. The story changes when China’s abundant capital strength, with close to $2.4 trillion in foreign reserves alone, combines with Taiwan’s IT technology ability. Taiwanese technology is in close competition with that of South Korean companies in the mobile sector, while the difference in memory semiconductors and LCDs is a just over one year at most.

Moreover, China has continued to make aggressive use of the domestic demand market to absorb technology, ordering those hoping to sell goods in China to hand over technology through the institution of joint corporations. This is of a completely different caliber from the passive methods adopted by South Korea in the 1980s and 1990s to learn advanced technology, such as bringing in talented individuals from advanced companies and copying advanced products. As cross-strait cooperation deepens, experts say, China’s technological ability will rapidly improve as Taiwanese companies enter China more frequently. This is also the reason for Samsung Electronics’ and LG Display’s tension regarding cross-strait cooperation as they run around trying to secure permits to establish local factories in China.

“We must continue maintaining the technology gap with China and Taiwan by securing core technology and improving brand value,” said Choi Jeong-deok, senior research of LG Economic Research Institute.

Choi also said,　“We also need to focus on conquering the markets for software and content, where Chinese and Taiwanese influence is weak.”

Please direct questions or comments to [englishhani@hani.co.kr]