Tiff between China and Taiwan will not hurt global tech supplies

A growing dispute between Taiwan and China won’t likely abate soon,but it also won’t hurt global technology supplies, experts saidWednesday.

The most recent flare-up in the often troubled tensions betweenTaiwan and China came after Taiwan President Chen Shui-bian Mondayabolished the island’s National Unification Council, and guidelinesthat had been put in place years ago to work for eventualreunification with China. The two split in 1949 amid civil war andChina has long vowed to attack Taiwan if it declaresindependence.

On the Chinese side, President Hu Jintao called the dissolution ofthe council a “dangerous step” toward “Taiwan independence,”according to Xinhua News Agency reports.

China’s Taiwan Affairs Office, the main conduit through which Chinaconducts its Taiwan policies, called the move a serious provocationsure to heighten tensions across the body of water that separatesthe two, the Taiwan Strait.

“(Chen)’s plan clearly is to abolish the National UnificationCouncil and guidelines to speed up the push toward Taiwanindependence,” the office said in a statement on its Web site. Theoffice called on the U.S. to reign in Chen and do its part tomaintain regional harmony.

Despite the strong response from China, observers don’t expect theconflict to escalate into a trade war or military confrontation.Taiwan and China account for a huge amount of global technologyproduction, mainly from Taiwanese factories operating in China. Insome categories, such as PCs and related components, the majorityof the global supply comes from the two places.

The recent events between Taiwan and China have a “zero” chance ofhurting trade, said Peter Sutton, head of research at CLSAAsia-Pacific Markets in Taipei. But he warned that tensions couldincrease because Taiwan’s president needs to prove he’s not alame-duck after his party lost ground in important Decemberelections. One way for Chen to recapture the limelight is toprovoke China, which normally lashes out and threatens the islandin response, playing into Chen’s hands.

“But China hasn’t made any threats and their policy of unilaterallyopening (trade with Taiwan) will continue,” Sutton said.

In fact, China has already overtaken the U.S. as the world’sleading exporter of IT and communications goods, according theParis-based think tank Organization for Economic Co-operation andDevelopment (OECD). China exported US$180 billion worth of IT andcommunications products in 2004, compared to $149 billion for theU.S. A large portion of China’s technology exports come out ofTaiwanese factories operating on the mainland, from companies suchas Hon Hai Precision Industry Co. Ltd., the world’s largestcontract electronics maker, and Quanta Computer Inc., the biggestnotebook PC maker.

Any disruption to the supply of components and goods from China andTaiwan would wreak havoc on global technology markets. Nobodyseemed to realize the importance of the region until Sept. 21,1999, when a massive earthquake hit Taiwan. The technology-heavyNasdaq fell 3.8 percent in the two days following the temblor,mainly as people began to realize how much the IT industry dependedon the island for certain components, including motherboards andgraphics chips, of which Taiwan used to supply the majority of theglobal demand.

The situation has changed a bit since then as some major companiessought second or third locations for component suppliers. Taiwan isstill a vital link in the supply chain, mainly due to itssemiconductor factories, which still account for a huge amount ofgraphics chips and, increasingly, DRAM (dynamic-RAM) as well asother chips.

“I don’t think that there is going to be serious impact to tradebetween Taiwan and China. It’s not in China’s best interest to cutoff trade,” said Andrew Yang, an analyst at the Chinese Center forAdvanced Policy Studies in Taipei. China is more interested indrawing Taiwan into its fold by making it economically dependentthrough investment, which has already been substantial. Someestimates place Taiwanese investment in China at around US$200billion.

Yang added that he does not see any likelihood of increasedmilitary tensions, either.

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