Interdependence and Labor Distribution Between China and Taiwan in the Information Technology Industry

ABSTRACT

China and Taiwan oppose one another politically, but economic interaction between the two is progressing. Economic interaction is most advanced in the IT industry, and there is a deepened mutual reliance and division of labor. Taiwan's IT industry, which centers around PC-related products, is expanding its scale of production and cutting costs by actively investing in China, transferring production base to China, and engaging in local production in China. By doing so, Taiwan's IT industry has acquired a large share of the global market and developed into Taiwan's most competitive industry.

Taiwan's IT industry which is making inroads into China is utilizing China's abundant low-wage workforce, adopting a management format advantageous for exports and cost cutting, and is expanding its local production in China. The Taiwanese IT industry has brought with it parts manufacturers and outsourcing companies from Taiwan, and industrial associations for parts supply have been formed between Taiwanese companies. Furthermore, these companies are developing divisions of labor, having China as a production base for labor-intensive products, and Taiwan as a base to fulfill production of high added value products and head office functions. The products being manufactured in China are gradually steadily becoming more sophisticated, in the following order: parts, peripherals, core products, and system products.

Investment in China by the Taiwanese IT industry and local production in China are concentrated mainly in two locations: Huanan and Huadong (South Region and East Region), and advances are being made in industrial concentration. Taiwan's IT industry is making the most of the advantages and characteristics of these two regions, while at the same time using the respective regions for different purposes: labor-intensive products for the export market are produced in the Huanan Region, while products with a relatively high technical level, and which are destined for the Chinese domestic market, are produced in the Huadong Region.

With regard to the links between China and Taiwan in the IT industry, in recent times there has been evidence of a move to higher value added products, and a strengthening of the approaches to the Chinese domestic market. There has also been a rapid increase in investment in laptop PCs and semiconductors. Theprogress of the structural shift and sophistication of the IT industry in Taiwan is promoting investment in China and further transfer of industry to China. As a result, the division of labor and interdependence of the IT sectors in China and Taiwan will progress further in the future. The concentration of the IT industry in this region is having a great impact on the world IT market, and is contributing to the advance of the world IT revolution.

The links between Chinese and Taiwanese IT industries is already having an impact on Japan's IT industry in terms of trade, investment and production frameworks. It will become necessary for Japanese companies to actively use the concentration of IT industry in China and Taiwan, and to realign its production framework that it has developed in Asia.