Taiwan's Machine Tool Industry Looks East as Competitiveness Wanes

Cross-Strait links in the spotlight at China International Machine Tool Show

The close connection between the machine-tool industries in Taiwan mainland China were amply evident at the China International Machine Tool Show (CIMT) 2013, held in April in Beijing. A total of 117 Taiwanese manufacturers attended the show this year, up from an originally expected 60-70.

The strong turnout from Taiwan highlighted the intense interest of machine-tool makers on the island to expand exports to the Chinese mainland at a time when it they are losing competitiveness due to the weaker Japanese yen, which has made Japanese less expensive on the international market.

The Taiwan Machine Tool & Accessory Builders' Association (TMBA) confirmed that for the first four months of this year Taiwan's exports of machine tools plunged by 19.6% from the same period of last year to US$1.09 billion, mostly due to the sharp 30% devaluation of yen against the greenback in the last six months or so. In response, the association's chairman, Eric Chou, suggested that the Taiwan government devalue the island's currency by 10% to below NT$30 for one US dollar to shore up exports. He warns that Taiwan's machine-tool makers will face hard times in the second half of this year if the NT dollar fails to devalue properly.

Eyes on the Mainland Market
While waiting for the government's answer, the Taiwan industry has been struggling trying to boost exports to mainland China, which dethroned Japan as the world's top machine-tool market in 2002. The Taiwan government-backed Industry Technology Research Institute (ITRI) estimates that mainland demand for machine tools will top RMB500 billion (US$80.6 billion at US$1:RMB6.2) in 2015.

The lucrative demand has attracted heavy investment from machine-tool powers, including Germany, Italy, Japan and Taiwan. The mainland's machine-tool output is projected to surge to RMB800 billion (US$129 billion) in revenue in 2015. In five years, the mainland is estimated to become the world's biggest machine-tool manufacturer.

Taiwan's machine-tool manufacturers stress that close cross-strait ties join the island to the huge mainland's machine-tool industry and market.

This fact was reflected by the strong Taiwanese turnout among the total of 1,500 exhibitors at CIMT 2013. Undeterred by the H7N9 avian flu epidemic, 117 Taiwanese manufacturers attended the show, constituting the second-largest exhibitor group at the show after mainland Chinese exhibitors. The high turnout was aided by TMBA's success in securing six additional halls to accommodate the Taiwanese exhibitors on the space-crowded floor, measuring 126,000 square meters.

Given the mainland's vast demands, the 2013 machine-tool show lured a reported 200,000 buyers from 60 economies, positioning it among the world's top four machine-tool show along with EMO of Europe, IMTS of the United States and JIMTOF of Japan.

Past CIMT's have focused on single-function milling machines and cutting machines, but multifunctional models stole the stage this year among the Taiwanese exhibitors, who touted fixed-axis machining centers, double-column machine tools, milling-turning hybrid machines, servo-driven pressing machines, electric discharging machines (EDMs) attached with robotic arms, and management system software and service platform. Exhibitors pitched these high value-added machines at the mainland's car, aircraft, electronics and precision-processing industries, where labor shortages have put a premium on automation.

Stimulating Sales
The Taiwanese exhibitors expected to bag lucrative orders at and after the show, encouraged by expectations that Beijing's new leadership will introduce new stimulus policies to lead the world's No. 2 economy onto a steady recovery path.

Taiwan manufacturers enjoy preferential terms on equipment exports to the mainland under the cross-strait Economic Cooperation Framework Agreement (ECFA), but they still face plenty of competition as they try to grow market share. "German and Japanese machine-tool manufacturers command much higher shares of the mainland market than Taiwanese manufacturers do given the zero tariff treatment granted by the mainland's authority for high-performance machines that Taiwanese manufacturers can not achieve," says chairman of the Taiwan Association of Machinery Industry (TAMI), S.C. Hsu.

"So, we need to accelerate negotiations with the mainland authorities over including more of Taiwan's machine-tool items in the ECFA preferential-tariff list," Hsu stresses. He hopes 400-500 of the excluded 600-700 Taiwan-built machine tool items would be included in the list this year after ECFA's follow-up talks. "If that happens, around 90% of Taiwan-made machines will enjoy the preferential tariff in 2014 and 98% in the following year," Hsu estimates.

The association has drawn up concrete steps to help Taiwan's machinery makers expand market share in the mainland. "The association will lead its members in promoting excellent products at trade fairs dedicated to quality Taiwan products in Tianjin, Dalian and Hangzhou. All participants are required to be winners of the MOEA's [the Ministry of Economic Affairs'] 'Taiwan Excellence Award', 'Rising Star Award,' and the association's R&D innovation award," Hsu stresses.

Hsu also suggested that to be able to compete with German and Japanese equipment suppliers Taiwan's manufacturers should upgrade the precision of their machines, introduce fixed-axis processing technology, as well as build capability for making milling-turning hybrid machines and automated peripherals.

In spite of resurgent Japanese competition from the cheap yen, Hsu remains cautiously optimistic about Taiwan's machine tool export for this year, estimating that Taiwan exports in the segment will rise by 5-10% from 2012's US$4.2 billion. "Don't forget that the Purchasing Managers' Index [PMI] has risen above the expansion-indicative benchmark of 50 worldwide," he notes.