[Op-Ed] A Powerful Combination

China in May last year sent a delegation representing 46 companies to Taiwan to buy goods. The group concluded a purchase agreement worth 2.2 billion U.S. dollars. Afterwards, China sent more such delegations several times in the latter half of the year and bought goods worth more than 10 billion dollars. The purchases were a boon for Taiwan, which was hit hard by the global economic crisis. The island country’s Ma Ying-jeou administration, which is pro-China, returned the favor with the unprecedented measure of allowing Chinese investment in Taiwan. Taiwan has been more aggressive than China in pursuing a bilateral free trade agreement. China’s overtures to its traditional enemy are attributed to Beijing’s strategy of winning over the Taiwanese people.

Since the inauguration of President Ma in Taiwan, bilateral relations have improved and taken another step forward in the wake of the global economic downturn. The Wall Street Journal said late last year that the two countries will actively pursue a free trade deal. If concluded, the accord will create an economic bloc between both nations. A similar agreement between China and the Association of Southeast Asian Nations took effect New Year`s Day. This heralds the emergence of a large economic bloc with a population of two billion covering China, Hong Kong, Macau, countries of the Association of Southeast Asian Nations and Taiwan.

If China and Taiwan increase access to each other’s markets by reducing tariffs, Korea will suffer due to lower price competitiveness. China’s production capacity and Taiwan’s cutting-edge technologies will produce a powerful synergistic effect. On this, Reuters said a tectonic shift is occurring in Northeast Asia’s state-of-the-art technology market. China and Taiwan have eaten into Korea’s share of the LCD panel market, a sector that is the stronghold of Korean companies. In early 2008, the combined market share of Samsung Electronics and LG Display was 46 percent but this dropped to the 30-percent level in the second half of last year. By contrast, the combined share of Chinese and Taiwanese companies rose to almost 60 percent during the same period.

Taiwan’s semiconductor makers have lagged behind Korea’s due to their smaller size despite having world-class technologies. Backed by Chinese investment, however, the Taiwanese companies will challenge Samsung Electronics and Hynix Semiconductor. The island country has allowed Chinese investment in its cutting-edge technology industries and China will give preferential treatment to companies that provide such technologies, a move mutually beneficial to both sides. Urgent action on the part of Korea is needed because Taiwan, whose economy was built by small to medium-size companies rather than large corporations, could join hands with China and deal a huge blow to Korean companies.

Editorial Writer Park Yeong-kyun (parkyk@donga.com)