Machinery Makers Follow Their Customers Westward

The government of mainland China is trying to boost the development of its machinery industry by implementing a strict policy of curtailing imports of production machinery and equipment, and by encouraging its own companies to use domestically made machines. Despite the fact that they are not anxious to move their production facilities offshore, Taiwan's machinery manufacturers are scrambling to move into the mainland in order to keep their customers there.

Victor Taichung Machinery Works Co., which in the past filled orders from mainland China through its mother plant in Taichung, will now fill them through its plants in the cities of Guangzhou and Tianjin.

Yin-King Industrial Co., a specialized maker of high-precision powder metallurgy parts, plans to expand production at its plant in Dongguan, Guangdong Province, and to set up a second plant somewhere in eastern China.

Shieh Yih Machinery Industry Co., a maker of pneumatic presses and high-speed presses, is speeding up the construction of its Shanghai plant. Mass production there is expected to get under way by the end of May this year.

Until now, Taiwan's machinery manufacturers have not followed the example of domestic labor-intensive industries in relocating production facilities to the mainland, because they rely heavily on mature industries for precision parts and accessories; the mainland's peripheral industries have not been advanced enough.

In the past, the mainland's industrial policy encouraged large enterprises to import precision production equipment by offering zero customs tariffs. That measure helped Taiwan's manufacturers to realize substantial growth in sales to the mainland. Under the new policy of encouraging the use of domestic machinery, however, Taiwan's products have lost their competitive edge in that market.

In the past, Taiwan's machinery manufacturers generally exported complete machines to the mainland, or shipped key parts and components across the Taiwan Strait for assembly there. Now, they are having to rethink their strategy.

"With the implementation of the mainland government's new industrial policy," reports Bert M.H. Huang, president of Victor Taichung, "we will beef up our presence in the mainland this year. Our two plants there will produce the machines, as well as the key parts and components, that we need to fill orders from our mainland customers."

Yin-King's Dongguan plant, which currently produces gearboxes for the automotive and machinery industries at a capacity of six million units a year, will be expanded. "We'll add a metal-forming machine and two assembly lines this year," says L.T. Lee, the company's president. "After those new facilities start operating, the plant's output will be reach eight million gearboxes annually."

The firm also plans to spend NT$300 million (US$8.6 million at NT$34.7:US$1) on a second mainland plant in either Suzhou or Changsu, Jiangsu Province. NT$70 million (US$2.01 million) will be allocated for the first stage of the plant's construction this year, and mass production is expected to begin in May 2004.

Shieh Yih expects to soon complete the first-stage construction of its Shanghai plant, and to start mass production by the end of May.