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Will the China-South Korea FTA affect Taiwan panel makers?
Julian Ho, Taipei; Alex Wolfgram, DIGITIMES [Monday 10 November 2014]

Taiwan's Ministry of Economic Affairs estimates that the recently signed free trade agreement (FTA) between China and South Korea will affect about 25% of Taiwan's industrial exports, valued at US$38.6 billion, including those in industrial segments such as steel, machine tool, automobile, display, polarizer, petrochemical, textile and glass, with the display industry potentially seeing losses upward of US$3 billion. Furthermore, Taiwan companies could lose up to US$8.42 billion worth of orders to South Korea competitors.

In light of this, panel makers in Taiwan have been quiet so far in terms of directly stating concerns over the agreement but sources at various companies including AU Optronics (AUO) have said they are urging the government to take action in order to offset any potential losses in Taiwan's panel segment that could occur from the agreement.

Taiwan panel makers have seen increased competition over the last few years as China makers have continued to expand production capacity and as Korea and Japan makers continue to dominate the higher-end panel segment for mobile devices. Taiwan makers have relied on product differentiation strategies while investing in new technologies in order to compete but some market observers are worried about the industry's future as China's earlier investments in display technology, namely the expansion of 8.5G lines, are expected to unfold in 2015 followed by increased efforts from Korea panel makers to tackle the high-end TV panel segment.

Digitimes Research has found that China's efforts in recent years will bring major changes in the industry, many of which could potentially be adverse to Taiwan. The global proportion of small- to medium-size TFT LCD production capacity from China is expected to increase to 35% as of 2017, up from 15.5% in 2011. In terms of large-size TFT LCD applications, China's global share will increase from 5.3% in 2011 to 25.5% in 2017. The statistics include production from both China-based makers and international makers which have facilities in China.

Additionally, China-based makers will be responsible for 33% and 17% of the global shipments of small- to medium-size and large-size LCD panels, respectively, in 2017. Their shipments to the two segments are expected to reach 130 million and 970 million units in 2017, up 51% and 54%, respectively, compared to 2013. BOE will hold the largest flat panel display spot in China from 2014-2017, accounting for 38% of all revenues produced from panel makers in China in 2017. That percentage is expected to exceed 40% in 2018 following the company's developments of high-end technologies, including LTPS TFT LCD, AMOLED and Oxide TFT LCD.

Digitimes Research also believes China makers will hold a 17.4% revenue proportion in the global TFT LCD industry in 2017, up from 11.4% in 2013.

Meanwhile, Focus Taiwan has reported that the Taiwan Association of Machinery Industry Chairman Hsu Hsiu-tsang has called for the speedy inking of a cross-Taiwan Strait trade-in-goods pact following the FTA, and has urged the Taiwan government to speed up the pace of its ongoing negotiations with China on the trade-in-goods agreement in view of the fierce competition from South Korea.