COMPETITION

Asian rivals will suffer if China's technology sector keeps current momentum, credit rating agency says

PUBLISHED : Tuesday, 01 September, 2015, 4:33pm
UPDATED : Friday, 04 September, 2015, 12:47pm

Rapid growth in mainland China’s technology sector could damage the prospects of competing firms in other Asian countries and hamstring their expansion, according to Standard and Poor’s.

In a report published by Taiwan Ratings Corp, a Taipei-based subsidiary of S&P, the firm said that the further growth of Chinese technology firms would "increase pricing pressure [on] established competitors in Asia".

"We believe China's enormous IT market, favourable government policies, and advancing technology capability will continue to support the expansion of China's technology sector," said Taiwan Ratings credit analyst Raymond Hsu.

Hsu identified mobile devices, LCD displays, and TV component manufacturing as key sectors where Chinese firms could dominate other Asian companies.

Chinese high-tech manufacturers were once minority players in the domestic market, which was ruled by companies from outside mainland China such as Taiwan's Foxconn, which reportedly scrapped plans this week to make a large investment in a factory in Indonesia. 

During his annual work report for 2015, Chinese premier Li Keqiang vowed to pursue a "Made in China 2025" strategy, similar to efforts taken by Germany in 2012 to revamp its domestic manufacturing industry.

"We will ... seek innovation-driven development, apply smart technologies, strengthen foundations, pursue green development and redouble our efforts to upgrade China from a manufacturer of quantity to one of quality," Li said.

However, this rhetoric has not necessarily been matched by industry results. Activity in China's factory sector shrank at the fastest rate in three years in August, as domestic and export orders tumbled, according to official figures.

Rising labour costs and a shrinking employment pool in the coastal cities that have long served as powerhouses of Chinese manufacturing has also seen some firms moving operations to India, Vietnam and Hong Kong.

Foxconn began hiring up to 100,000 extra workers in its Chinese factories as it geared up for production of the new iPhone, expected to be announced at an event on September 9.

However, the company has also been a leader in moving operations to India, where it has invested US$5 billion in opening new factories.

A number of Chinese smartphone brands, including domestic market leader Xiaomi, have begun making devices in India as they target middle-class consumers there amid a slowdown in demand in smartphone-saturated China.