The Current Situation, Strengths and Weaknesses of Advanced Manufacturing in Taiwan台湾先进制造的现状，优势与弱点
The Current Situation, Strengths and Weaknesses of Advanced Manufacturing in Taiwan
Since 2011, Apple has announced its own supplier list every year. As manufacturing practitioners, we actually focus on two points. One is how many local companies in mainland China account for it. The other is where in the world these suppliers are located.
Let me first talk about why we pay attention to how many local companies in mainland China account for. This figure is very important because it directly reflects the technical level and status of local companies in mainland China in Apple's supply chain.
Apple announced its top 200 global suppliers in October 2022. The list of suppliers published each year is calculated based on the previous year's sales. It is said that there are 200 major suppliers. In fact, the total number announced by Apple is not less than 200, but 190.
Among Apple's top 200 global suppliers in 2022, there are 46 in mainland China + Hong Kong, and 46 in Taiwan, ranking first in terms of quantity.
Adding up the number of Chinese suppliers, it can account for about 50% of Apple's suppliers, exceeding the proportion of suppliers in Japan, South Korea, and the United States. From this point, we can see how dependent Apple is on Chinese suppliers.
But today, we will focus on the level of advanced manufacturing in Taiwan, as well as their advantages and existing problems.
1
Why you should pay attention to Taiwan's advanced manufacturing industry
In 2022, Taiwan will be the largest source of trade deficit in mainland China, and it will be far ahead of all trading partners in the world. The data on cross-strait trade is as follows.
In 2019, China's imports from Taiwan were US$173 billion. By 2022, China's imports from Taiwan will be US$238.09 billion, showing a sharp increase.
At the same time, mainland China’s trade deficit with Taiwan has risen from US$117.92 billion in 2019 to US$156.5 billion, which has also increased significantly (trade deficit-mainland China imports more products from Taiwan than it exports).
China's second largest trade deficit in 2022 will be Australia, the third largest will be Brazil, and the fourth largest will be Russia, all of which are smaller than Taiwan. More imports mean that the manufacturing industry is highly dependent on the region's supply chain.
As mentioned earlier, the distribution of factories of Apple’s top 200 suppliers in the world in 2022, there are at least 72 factories in the Apple supply chain in Taiwan that provide parts and components for Apple, and these products are ultimately assembled in mainland China.
Not only Apple, Huawei, Xiaomi, OPPO, vivo, Lenovo and other companies all use a large number of parts and components produced in this region. Not only is the chip industry developed in Taiwan, but passive components such as resistors and capacitors are also produced in large quantities.
Mainland China's trade deficit with Taiwan and its dependence on Taiwan's supply chain are the most important reasons why we should pay attention to Taiwan's manufacturing industry.
2
The current development level of advanced manufacturing in Taiwan
The scale of a country's manufacturing industry can be seen from the added value of the manufacturing industry. As of today, many economies have not released data for the entire year of 2022, so let's look at the data for 2021 first.
In 2021, the added value of manufacturing industry ranks tenth in the world in Russia, and the added value of Taiwan's manufacturing industry ranks eleventh in the world. Due to the Russia-Ukraine war, Russia's manufacturing industry has poor prospects for development, so Taiwan is likely to become one of the top ten manufacturing economies in the world.
If we look at the proportion of Taiwan's manufacturing industry in GDP, we will find that it is much higher than other developed economies in the world.
In 2021, the manufacturing industry in Taiwan will account for as much as 32.88% of its GDP, while the manufacturing industry in mainland China will account for 27.4% of GDP in the same year. The manufacturing industry accounts for 18%-20% of GDP in Germany and Japan, and even lower in Britain, France, and the United States.
Not only that, the ratio of Taiwan's manufacturing industry to GDP has been rising in the past ten years. From 28.27% in 2011 to 32.88% in 2021.
If the industry is included (including manufacturing, gas, electricity, water supply and other industries), Taiwan's industrial added value will account for 37.95% of GDP in 2021. In the same year, the industrial added value of mainland China will account for 32.58% of GDP. .
3
A strong manufacturing industry driven by the chip industry
It is well known that Taiwan has mastered high-tech products centered on chips and a strong electronics manufacturing industry.
From the analysis of Apple's industrial chain, it has the world's most advanced chip manufacturing industry and most of the world's chip foundry production capacity. Not only that, it also has developed electronic foundry companies and electronic component companies.
Even today, Taiwan-based companies are still the largest exporters in many regions of mainland China, such as Shanxi Province, Henan Province, Jiangsu Province, Sichuan Province, Shanghai, and Chongqing.
Among them, the largest exporter in Shanxi, Henan, and Sichuan is the Taiwanese company Foxconn, and the largest exporter in Jiangsu Province is Taiwan Mingshuo in Suzhou, which mainly produces notebook computers.
The largest exporter in Shanghai and Chongqing is also a Taiwanese contract manufacturer, Dafeng Computer, which mainly produces notebook computers.
Although the largest exporter in Guangdong Province is Huawei, Foxconn ranks second; the largest exporter in Shandong Province is Hisense, but Yantai Foxconn also ranks second.
It can be seen from this how much influence Taiwan's manufacturing industry has on the foundry companies and employment in mainland China.
As an economy, the Taiwan area is small and has few human resources, but it can make full use of the human resources in mainland China and set up OEM enterprises in the mainland. This allows it to master the ability to manage large factories with hundreds of thousands of people or even millions of people through a small number of management.
Usually we think that the foundry is an assembly plant, with low profit margins and no technical content. This is only one aspect. However, if the scale of the foundry is large enough, the total scale will form a kind of competitiveness.
The production capacity is large, and the requirements for supply chain management capabilities are high. This capability can also allow Taiwanese companies to establish large-scale manufacturing capacity in Vietnam and India. This is also one of the reasons why Taiwanese companies have always stood at the top of the global electronics foundry in these years.
4
Weaknesses of Taiwan's Manufacturing Industry
The manufacturing industry accounts for a high proportion of GDP, and the largest export companies in many regions of mainland China are Taiwanese companies. These are the advantages of Taiwan's manufacturing industry. What are the weaknesses?
If you study the market capitalization of Taiwan's stock market, you will find that the manufacturing industry in this region is actually very single. The data are as follows.
Judging from the market value of Taiwan stocks at the close on March 7, 2023, TSMC is the company with the highest market value in Taiwan. The market value of a company accounts for 27.58% of the entire stock market, more than a quarter.
This figure far exceeds that of Hon Hai Group (the parent company of Foxconn), which is the second largest manufacturer of electronic products. Hon Hai's market value accounts for 2.95% of Taiwan's stock market.
At the same time, the companies ranked third, eighth, and thirteenth in market capitalization in Taiwan's stock market are MediaTek, UMC, and ASE. These three companies are leaders in the chip industry.
In addition to the chip industry, what else does Taiwan's manufacturing industry rely on to support it?
The top non-chip companies in Taiwan by market capitalization are shown in the figure above. Among them, there are four companies in the top 16, Formosa Plastics Petrochemical, Nanya Group, Formosa Plastics Group, and Formosa Chemicals Corporation. They are all petrochemical companies and belong to Formosa Plastics. Enterprise groups, their combined market value accounts for more than 5% of Taiwan stocks, which is much higher than the 2.95% of the second-ranked Hon Hai Group.
From this ranking, it can be seen that in addition to financial companies, the manufacturing industry in Taiwan is Taiwan’s chip industry led by TSMC, MediaTek, UMC and ASE, and the electronic product manufacturing industry centered on electronic foundry, as well as the Formosa Plastics Group. The plastic petrochemical industry is the representative, and other industries are actually relatively small in scale.
For example, Giant Bicycle is a world-renowned brand. The huge group that owns this brand has an annual operating income of 20 billion yuan, while the Uni-President Group in the food industry has mainly operated in mainland China.
It can be seen that only the high-tech content of the chip industry is relatively prominent, while in other industries with large volume and high technology content, such as automobile manufacturing, aerospace manufacturing, medical equipment and pharmaceutical industries, etc., there are no strong Taiwanese companies. Industrial simplification is a major hidden danger of Taiwan's advanced manufacturing.
5
Cross-strait industrial competition
Innolux and AU Optronics in Taiwan export a large number of display panels to mainland China, and BOE and CVTE are already able to produce these products themselves, and these are bound to be gradually replaced.
For example, passive components in the electronics industry: electronic components such as capacitors, resistors, and inductors are actually Japanese companies with the most advanced level, Taiwan companies are at the middle level, and mainland Chinese companies are at the middle and lower level.
Electronic brand manufacturers in mainland China are bound to support local passive component companies to gradually replace Taiwan-based products through tilting orders.
Of course, there are also various major electronic OEMs, which will gradually replace Taiwan's major OEMs at different levels.
For products that are difficult to replace in the short term, such as advanced process technology chips manufactured by TSMC, on the one hand, mainland companies are investing in research and development, and on the other hand, mainland China needs to prepare inventory plans to prevent ZTE from being cut off by the US chip supply in 2018 and business shock situation happened again.
It can be seen that the simplification of industries is a major hidden danger for Taiwan. If mainland China can make breakthroughs in the high-tech chip industry, improve the competitiveness of the electronic foundry industry, and gradually replace Taiwanese products with local products, it will have a negative impact on Taiwan. The manufacturing industry has had a considerable impact.
Of course, from the perspective of energy and information, the most important areas for advanced manufacturing in mainland China today are actually the manufacturing in Vietnam and India that we will talk about later. If you pay too much attention to the Taiwan area, you may find that you have lost watermelons when you look back. Sesame.
台湾先进制造的现状，优势与弱点
把中国供应商的数量加在一起，能够占到苹果供应商的50%左右，超过了日本、韩国、美国的供应商占比。从这一点上，可以看出苹果对中国供应商的依赖程度。
但是今天，我们重点看下台湾地区先进制造业发展到什么水平，以及它们的优势和存在的问题。
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