Production of Taiwan Machinery Industry Expected to Top NT$1 Trillion in 2012

The Taiwan Association of Machinery Industry (TAMI) believes that with the implementation of the cross-strait Economic Cooperation Framework Agreement (ECFA) at the beginning of 2011, the island's overall machinery production will break the NT$1 trillion mark this year or next so long as the external economic situation doesn't worsen.

According to statistics compiled by TAMI, the value of Taiwan's machinery production grew 40% year-on-year in the first 11 months of 2011. As the number of categories of Taiwan-made machinery that enjoy zero-tariff treatment in China will continue to increase, TAMI chairman Hsu Hsiu-tsang predicts that the industry will see an 8% increase in production value this year.

TAMI notes that more than 100 machinery items are included in the ECFA early-harvest list and will enjoy step-by-step tariff reductions in China, benefiting Taiwanese machinery makers who ship to that country.

Hsu originally predicted that Taiwan's machinery production would top the NT$1 trillion mark in 2011, but the global economic downturn and customer appeals for delayed shipments caused that prediction to fail. Still, Hsu points out that the domestic machinery industry has performed better than other industries since the beginning of 2011, with little impact from the European sovereign debt crisis.

Cautious Optimism

Hsu is cautiously optimistic about the domestic machinery industry in 2012, believing that shipments to the North American market (including Mexico) will grow more than 15% and those to the Latin American market will expand by over 15% (because of increased demand from customers in Brazil) this year.

Hsu predicts that exports of machinery to the European Union and Turkey will remain flat in 2012 because of the sovereign debt crisis there. He says the EU market will recover once the Turkish market turns upward, because Turkey relies heavily on imported machinery and is positioned as a critical transshipment point in the Eurasian region.

TAMI predicts that the domestic machinery industry will see a whopping 50% growth in exports to the East European market, including Russia, in 2012. Exports to Southwest Asia, including India, are expected to grow over 15% this year because Indian manufacturers of consumer products have high demand for imported molds and machine tools. Over the past few months, several industry associations in India have been active in contacting TAMI with the aim of persuading Taiwan's manufacturers of plastics and rubber processing machinery and machine tools to invest in India or launch joint-venture businesses there.

TAMI says domestic machinery manufacturers have seen increase in rush orders since the flooding in Thailand in July 2011 as the flooding has destroyed many Japanese automotive-parts plants which urgently need production equipment to rebuild production lines. The association forecasts exports of domestically made machinery to Thailand and Indonesia will grow 20% year-on-year in 2012.

China is a highly promising market for Taiwan's machine-tool makers, with a GDP that is predicted to grow 8% in 2012. TAMI's tallies show that China experienced a more than 45% year-on-year growth in imports of Taiwan-made machine tools in the first 11months of 2011; by comparison, the increase in imports from Japan and Germany were 65% and 57%, respectively.

In view of the rapid growth of the China market, TAMI is calling on domestic machine-tool manufacturers to sharpen their competitive edge for doing business there. The best way to boost sales in that market, TAMI says, is to strive for the expansion of the ECFA early-harvest list.

Taiwan's machinery manufacturers hope that some critical machinery categories, including machining centers, electric discharge machines, shoe-making machines, and valves, will be included in the early-harvest list negotiations this year.

Impact of the Korea-EU FTA

The island's machinery manufacturers are worried about the free trade agreements (FTAs) that South Korea has signed with the European Union and the U.S., allowing its machinery zero-tariff treatment in the European and U.S. markets—where Taiwan-made machinery is subject to tariffs of 2% to 5%. Faced with this problem, Taiwan's machinery manufacturers are calling for the government to boost subsidies for participation in overseas exhibitions and development of the European and U.S. markets.

Despite the tough competition from archrival South Korea, Hsu insists that Taiwan's machinery manufacturers have a strong competing edge because of their focus on high-quality products, rapid delivery, and value for money.

Hsu says domestic machinery manufacturers should further heighten their competitive edge and enhance their services and technical support by making optimal use of government subsidies along with their advanced information and communication technologies.

Because of the reduction of tariffs under the ECFA early-harvest list, Taiwan-made CNC horizontal lathes saw exports to China grow 163% year-on-year in the first nine months of 2011. Other items, including CNC surface grinding machines, pressing machines, stamping machines, and tool holders, chalked up growth rates of 63% to 988%. All of these items will have their Chinese tariffs slashed to zero this year.