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Mixing business with politics?

Publication Date : 22-06-2012

 

A Chinese procurement group representing China's eight biggest vendors of electronic products has arrived in Taiwan with the primary goal of purchasing LCD panels. One cannot help but wonder, however, why they need to make such a high-profile trip across the Strait.

It is the fourth year such a delegation has been here for flat panel purchases. As in the past, the delegation has again signed letters of intent with major Taiwan-based panel makers.

This year, the Chinese firms are looking to buy US$4.5 billion worth of panels that are used to make TVs, monitors and the screens for many other electronic devices.

As these are only letters of intent, it means actual purchases may vary. Over the past three years, the actual purchases have been typically lower than the targets.

But Bai Weimin, vice president of the China Video Industry Association who is leading the group, said the unit goal of 30 million flat panels this year is higher than the actual procurement of 26 million units in 2011, despite the fact that the projected value is 20 per cent lower than last year's due to the slumping prices of flat panels.

Her remarks carry a few messages summing up the current situations of the China market and the LCD panel industry: demand in China has been growing, while panel prices have plunged substantially.

In a market economy, the prices are determined by supply and demand. It seems that prices should be going up on increasing demand in China.

But in fact other major markets in the United States and Europe have been stagnant. It means that panel makers have to rely more on China, which is now the biggest LCD TV market in the world.

But is the Chinese delegation in Taiwan here to take advantage of this buyers' market where the suppliers are in a weak position to negotiate prices with their clients?

Price may be a factor, but probably not a major one. After all, these Chinese companies could have done it elsewhere in a more low-key manner.

In the business world, companies usually would not like to make a big splash about their operations, unless they have a strategic purpose. You would never see Apple openly reveal the volume of orders it gives to its contract manufacturer Hon Hai Precision Industry, aka Foxconn.

What are the Chinese firms' strategic purposes? One of them seems to be a show of support for the annual Display Taiwan trade show now taking place in Taipei.

The expo has lost its glory — if it ever had any — as local big players such as AU Optronics and Chimei Innolux have stopped taking part in it since last year. Instead the two panel makers have now chosen to showcase their products and technologies at similar trade shows in China.

Why would the Chinese firms come to support an insignificant show and do business with Taiwan suppliers when they can stay in China to enjoy better exhibitions and sign agreements with suppliers who come knocking on their doors?

We are not saying that there is no commercial purpose in the procurement trip. After all, the Chinese firms still need supplies from Taiwan, which remains a powerhouse in the global LCD industry although China's own panel makers are rising fast.

But the Chinese delegation's trip inevitably carries some political implications.

The trip is meant to be a gesture of support of Taiwan's industry, a show of friendship between the people from both sides of the Strait, and proof that Taiwan and China are getting closer and closer.

We don't mean to politicise anything concerning cross-strait relations, but in this case business also serves a political purpose.

 

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