Taiwan's largest makers of machine tools are enjoying substantial growth in sales to mainland China, thanks largely to the booming auto industry there, and many of them are anticipating handsome profits this year as a result.

For example, Tong-Tai Machine & Tool Co. and Kao Fong Machinery Co., both manufacturers of computerized numerically controlled (CNC) machine tools, report that their ratio of sales to the mainland reached a historic high of 40% in the first half of this year. Falcon Machine Tools Co. claims that sales by its Shanghai plant skyrocketed sevenfold in the first half.

"Automobile manufacturers have been the main customers of machine-tool makers for decades," comments Kao Fong chairman Chuang Kuo-hui. "Taiwan producers have frequently had problems selling to Japanese auto companies and joint-venture auto companies in mainland China with Japanese partners, however, because those companies preferred to use Japanese-made machine tools. Now, things have turned better because of the economic slowdown of the past few years.

"Eight out of every 10 Japanese machine-tool manufacturers have been in the red for years now, and they have little energy left for development of the mainland Chinese market. But some of our Taiwanese auto manufacturers have set up plants in the mainland during the past few years, and they have adopted locally made machine tools. That's why many of our domestic machine-tool makers are reporting increased sales to the mainland in the first half of 2003."

For example, Kao Fong shipped NT$200 million (US$5.8 million at NT$34.5:US$1) worth of machine tools to the mainland in the first half, accounting for 40% of its total sales. For the Far East Machinery Group (of which Kao Fong is an affiliate) as a whole, the ratio was 50%.


Beefing Up the Mainland Market


Chuang hopes to continue prospering from the development of the mainland auto industry. "To further develop the auto industry market there," he explains, "we will beef up our planning capability and offer whole-plant and whole-production-line products in the near future."

Chan Chih-cheng, president of Kao Fong, states that his company sold 200 machine tools to the mainland last year, with most going to the satellite factories of auto manufacturers. To strengthen its position in the mainland, the company recently inaugurated a plant in Kunshan, near Shanghai, which will start assembling CNC lathes and machining centers by the end of July. Output will be limited to five lathes and five machining centers per month initially, but the volume will be further expanded in the near future.



Numerous local machine-tool makers that have not yet set up plants in the mainland are planning to do so. Lin Sung-tien, vice president of Taiwan Takisawa Machinery Co., reports that his firm has already leased land in Shanghai and is building a plant there to assembly machine tools as well as turn out auto parts. Construction of the plant was stalled by the SARS outbreak, but now that the outbreak has tapered off the installation of production equipment will soon begin and pilot production is expected to start some time in the present quarter. Key components will be shipped from Taiwan for the assembly of machine tools at the plant.


Diversifying Production


Y.P. Hsu, a spokesman for the Shieh Yih Machinery Industry Co., says that his company made a decision last September to set up a factory in Shanghai so as to be closer to its customers. Pilot production at the plant will begin by the end of July.

In the initial stage the new Shieh Yih plant will focus on the production of C-type pressing machines, with production value expected to reach NT$10 million (US$290,000) per month. The product line may be diversified to meet the needs of the mainland's auto market.

"Thanks to the rapid growth of the mainland's auto industry," comments Falcom chairman and CEO Chang Pao-ming, "our Shanghai plant has seen a substantial increase in sales of CNC grinding machines and machining centers to both state-run and private manufacturers of auto parts. The plant shipped RMB40 million (US$4.83 million) worth of machine tools in the first half of last year, seven times more than the previous year. After our expansion project is completed, I expect that the plant will challenge the RMB120 million (US$14.5 million) sales figure for the entire year."

Wang Kun-chung, vice president of Tong-Tai, gives more reasons for optimism. "The effects of the mainland's tenth five-year economic development plan is becoming more evident," he says. "That massive plan has helped people in the coastal areas to earn more income than ever before, and with their growing wealth the mainland auto market is expanding at a rate of 400,000 automobiles per year."

Currently, the company mainly sells machining centers to manufacturers of automobiles and auto parts in the mainland on a whole-plant basis. Large orders from mainland auto makers for braking systems have been received recently, Wang reports.

The company shipped NT$200 million (US$5.8 million) worth of machining centers to the mainland in the first half of this year, accounting for 45% of its total sales during the period. Shipments for the whole year are expected to top NT$400 million (US$11.6 million).