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EDITORIAL : Business
in China getting costlier
Just like the spate of worker suicides at Foxconn Technology Group¡¦s Chinese
factories one year ago highlighted the rapid societal and cultural changes in
China, Taiwanese metal-casing maker Catcher Technology Co¡¦s partial suspension
of its operations in Suzhou a week ago over environmental disputes points to a
deeper issue to be taken seriously.
Catcher¡¦s factory suspension soon turned into a social issue, after China¡¦s
state-run broadcaster CCTV ran an investigative report that said 27 companies in
Apple Inc¡¦s supply chain have contributed to pollution in China. The report also
accused Apple of turning a blind eye to its suppliers¡¦ activities in China.
Just as several of the Taiwanese suppliers ¡X including system assemblers Hon Hai
Precision Industry Co and Pegatron Corp, touch-panel makers TPK Holding Co and
Wintek Corp, and printed-circuit board suppliers Compeq Manufacturing Co ¡X
denied their Chinese production facilities had been forced to shut down because
of pollution concerns, several Taiwanese newspapers last week said that the
Apple supply-chain companies may have fallen prey to a potential trade war
between China and the US, suggesting the whole issue is a political matter.
This speculation came amid worries about the US Senate¡¦s recent passage of a
bill that, if signed into law, would call on the White House to impose
unilateral and broad-based tariffs against countries, China in particular, that
are willfully manipulating their currencies.
Because Catcher is one of the leading aluminum alloy and magnesium alloy casing
makers in Taiwan, which counts Apple, Dell Inc and Hewlett-Packard Co among its
major customers, local newspapers speculated that the company¡¦s partial factory
shutdown in Suzhou was yet another sign of a looming China-US trade war. The
first sign of Beijing¡¦s retaliation against the Senate¡¦s bill, according to
critics, emerged when the yuan began depreciating against the US dollar after
the bill was passed on Oct. 11.
Whether or not a trade war between China and the US becomes a reality, the
pollution dispute at Catcher will affect Taiwanese companies¡¦ operations in
China, bringing to mind the Foxconn issue in China last year. It should also
serve as a wake-up call for investors and shareholders of these supply-chain
companies.
First, Taiwanese firms that have long relied on China¡¦s ample labor supply and
low wages are now faced with the challenges of not only pay hikes, but also
higher environmental standards. Catcher announced last week it would invest US$4
million to reduce odors, but small Taiwanese companies are unable to do so,
given their financial constraints.
Second, if Apple¡¦s suppliers are to secure orders from the US company, they will
have to ramp up investment in environmental protection and green technology, in
addition to maintaining efficient and flexible production. However, there is no
guarantee that they will be able to maintain profitability, especially with the
increased investment risks facing them in China.
The yuan exchange rate and the potential China-US trade war are issues beyond
investors¡¦ control, because they are political in essence. However, Catcher¡¦s
factory shutdown is a reminder of the heightened risks that these companies face
and that investors should review their portfolio from a longer-term perspective.
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