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No Fear of Trade War, Taiwan's Machinery Industry Eyes NT$2 Trillion Mark by 2025

Aug 02, 2019 | By CENS

In 2017, the value of Taiwan machinery industry first surpassed the NT$1 trillion mark at NT$1.1 trillion. The export value of the industry in 2018 amounted to US$27.4 billion, exporting towards the island's top three destinations: China, the U.S, and Japan. On the other hand, the production value reached a record high of NT$1.18 trillion, representing a 7.3% growth. This year, the Taiwan Association of Machinery Industry (TAMI) plans to incorporate the smart machinery into the cloud by utilizing the sharing economy model to develop a national machinery cloud, assisting equipment manufacturers to introduce a cloud service platform, with expectations to reach a NT$2 trillion production value by 2025.

The chairman of Taiwan Association of Machinery Industry (TAMI) ,Alex KO (photo provided by TAMI)The chairman of Taiwan Association of Machinery Industry (TAMI) ,Alex KO (photo provided by TAMI)
Develop Smart Machinery for Practicality
In response to turning Taiwan into a kingdom of smart machinery, TAMI unveiled smart machinery industry white paper, envisioning the local industry with annual output worth NT$2 trillion by 2025, bringing up six proposals including global strategy, smart machinery, smart production, cultivation of talent, cross-field cooperation, policy resource. TAMI reckoned national policy on Industry 4.0 should be carried out under short term, mid-term and long term blueprints. The short-term goal is to intellectualize machine equipment, connecting the traditional and new machines to the Internet so as to carry out remote control and maintenance. The mid-term goal is to accelerate the development of the sensor and the machine cloud, leveling up the competitiveness of Taiwan's machinery through the analysis of product information and machinery design. TAMI, National Cheng Kung University, Chunghwa Telecom Co., Ltd, Institute for Information Industry and other organizations are teaming up to develop the machine cloud, hoping firms will utilize related software and domains by renting or sharing the cloud. This allows the developers to collect data and deliver production information to strengthen remote services and foresee malfunction. The long-term goal is to build an industry-level sensor, and use the sensor and sensor module signal's feedback and analysis for surveillance, database building, and improve Taiwan's standing in the smart machinery industry.

Trade Tensions Overthrow the Machinery Industry
The export of the machinery equipment decreased from January to May in 2019 and the export value of the machinery equipment reached US$10.532 billion, a decrease of 6.2% compared to the same period last year. With the escalating tension of the trade war between the U.S and China, the Korean Won and the Chinese Yuan depreciated. The chairman of TAMI, Alex Ko questioned the central bank, saying the New Taiwan Dollar should continue to devalue until the exchange rate against the US dollar reached NT$33 to enhance Taiwanese machinery's export competitiveness.

Ko pointed out the biggest competitors of Taiwan's machinery are China and South Korea. This year, the Won has dropped 5% against the U.S dollar while New Taiwan Dollar only devalued by 2%. The depreciation gap in the exchange rate amounts to 3%. Ko said South Korea has a higher coverage rate in its Free Trade Agreement, having more duty-free access for Korean-made machinery products. Taiwan's equipment sector, on the other hand, is subject to a 10% tariff.

In comparison with South Korean products, Taiwanese products, under tariff and currency depreciation, the export price competitiveness is 13% lower than the former. Additionally, the trade war between the U.S. and China has affected the investment of China and other Association of Southeast Asian Nations. Aside from this, the EU and Japan reached a consensus called the Economic Partnership Agreement , which poses a great impact on Taiwan's export. The government should take this issue seriously, Ko said.

Ko, pointed out China's market accounts for nearly 30% of Taiwan machinery's exports, affected by the trade war between the U.S. and China. If U.S. President Donald Trump really ramps up U.S. tariffs, many clients will stay on the sidelines, deferring their purchases in the short term, Ko emphasized.

Ko expressed, in the long term, the machinery industry will be the biggest beneficiary. At first, clients only had to renew their equipment. However, in order to avoid putting their businesses at risk, clients have begun their exodus out of China. The latest in the production trends and trade tensions has taken away China's status as the world factory, as clients choose to relocated their factories to other countries. Ko estimates that the relocation will prompt clients' demand to increase procurement of machinery equipment, signifying a potential business boom for the industry.

Increased Global Orders: Buoyed by Smart Machinery and Quality Supply Chain
Taiwan's machinery industry has a comprehensive supply chain model, and it has abundant R&D momentum to meet production needs for precision molds and parts processing equipment in of aerospace, automotive, medical, consumer electronics, and energy industries.

Change is inevitable: Automation, customization and intellectualization have become necessary elements in the R&D process of machinery products, and at the same time, suppliers must be flexible and capable of delivering rush orders and short orders on time. It is inevitable for the industry to continue its innovation for new, key technologies, as means to raise Taiwan's international competitiveness and gain recognition among global buyers.

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