Taiwan’s brain and China’s braun

Scott Tong Mar 21, 2008

Taiwan’s brain and China’s braun

Scott Tong Mar 21, 2008


KAI RYSSDAL: The Chinese government will be turning its attention from Tibet to Taiwan this weekend. There are presidential elections Saturday in what Beijing regards as a renegade province. No matter who wins, it’ll be a headache for the government on the mainland. Both the Taiwanese ruling party and the opposition there say they’re the best choice to resist pressure from Beijing. Politics aside, though, the two economies are more tightly bound than ever.

Marketplace’s Scott Tong did a little demonstration to make the point.

SCOTT TONG: If you turn off your laptop and explore its anatomy, you realize the “Made in China” label is misleading.

Jimmy Hexter: The first thing you see here is the LCD panel. It’s the most expensive part.

Jimmy Hexter of the Beijing office of McKinsey consultants does a little show and tell, to illustrate.

Hexter: The panels are made generally in Taiwan or Korea.

Taiwan — he says that a lot. Pop out the keyboard, and under the hood sits the motherboard.

Hexter: Motherboards have been increasingly assembled by Taiwanese companies…

And on and on. Taiwan semiconductors, Taiwan network cards, Taiwan DRAM, whatever that is. It’s a complex and tightly woven supply chain. But to oversimplify, the smarts come from Taiwan, the labor from China — and everyone profits.

The Chinese workers who assemble these computers work for Taiwan-owned companies based in China. These Taiwanese firms dominate the industry.

Hexter: If you go to the campuses that some of these companies have built in China, you’re really seeing hundreds of millions of high-tech products — whether it’s PCs, whether it’s notebooks, mobile phones, whatever it is — to an order of magnitude that’s almost unimaginable.

Taiwan-run firms then sell their products to Dell, HP, IBM etc., who slap on their logos — making them instantly “American.”

In the production of electronics, the interweaving between mainland China and Taiwan evolved quickly. Political scientist Shelley Rigger of Davidson College says just 20 years ago, the two sides had no business links. In fact, China was just emerging from its Soviet-style past.

Shelley Rigger: China, for so many decades, had no market economy. No one learned how to do business in international markets. But in the late 1980s, when the rest of the world was shunning the Chinese economy right after the Tiananmen incident, Taiwanese investors rushed in.

But they came indirectly. Airplanes couldn’t fly straight to China — they still can’t, under a Cold War barrier still on the Taiwan books. But slowly, those walls is coming down. Both Taiwanese presidential candidates pledge to allow direct flights, plus more cross-straits investment. It’s meant to boost the economy and appeal to the business community.

Taiwanese securities executive Lin Xian Bin says it’s working:

Lin Xian Bin: If we want to open more to the global economy, we need to throw away the ideologies and take a more open attitude toward the mainland. That’s best for Taiwan.

Shelley Rigger says it’s also best for Beijing, which sees itself as Taiwan’s motherland.

Rigger: The Chinese government believes that having a good, tight economic relationship with Taiwan advances their political interests.

And for some Taiwanese, there’s the rub. If their businesses drift too close to China, the island could lose its perceived identity. Still, Rigger thinks if both sides manage things well, they can have it all: economic integration and political truce. Kind of like sharing an office, but sleeping in separate beds.

In Beijing, I’m Scott Tong for Marketplace.

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