3. Taiwan of China

3.1 Overall Economic Situation of Taiwan of China
Taiwan covers a land area of 36,200 square kilometers, and a population of 21.8 million in 1998. The per capita GDP reached US$ 12,010 with a GDP growth rate of 4.7%, and industry accounts for 35% of the GDP. The rate of unemployment is 1.7%. The following table shows the growth in Taiwan's GNP in the 1990s.

It can be seen from the above tables that Taiwan's GNP has maintained a high growth rate, but the growth rate has a tendency of gradual slowdown, decreasing from 7.3% in 1990 to 4.3% in 1998. According to the forecast of Taiwan's China Research Institute, the economic growth rate in Taiwan will slow down to 2.22% for 2002. Viewing from the composition of sectors of Taiwan's GDP, the proportions of industry and agriculture in the whole economy have decreased year by year, whereas that of the service sector has increased year by year, up 8 percentage points during a period of 8 years.
Taiwan is meeting an economic depression lately, and the industrial development has shown indication of decline as a result. According to the statistics of the Ministry of Economy, the number of closed down plants has been rising, reaching 3000 during the first five months of 2001 alone, up nearly 70% over the same period of the preceding years. Newly built up plants numbered 1636, a decrease of more than 500 over the same period of the preceding year.
The nongovernmental investment in Taiwan has been on a low ebb. Since 1999, as a result of stagnation of the real estate market and drastic weakening of investment in the building industry, the nongovernmental investment in Taiwan only increased by 0.19% in 1999, a record low since 1990, and even dropped once by 5.3% in the first half of the year. Comparatively the nongovernmental investment in the manufacturing industry was satisfactory with an increase rate up to 17.2%. In contrast, the investment in Taiwan by overseas Chinese and foreign businessmen increased by a large margin. In 1999, Taiwan absorbed 1068 items of external investment with a total amount of US$ 4.185 billion, up 16% and 27% respectively over the preceding year. The top five foreign-funded industries have invested in Taiwan are electronic and electrical appliances, banking and insurance, service industry, wholesale and retail trade and international trade. The amount invested overseas by Taiwan enterprises was even with that in the previous year, and that amount for the period from January to November 1999 was US$ 3.068 billion, a slight increase of 0.88% over the same period of the preceding year. The top five categories that attracted the investment were banking and insurance, electronic and electrical appliances, transportation, foreign trade and wholesale trade.
Taiwan began to implement the Regulations for Promoting Industrial Upgrading in 1990, which played an active role in pushing industrial upgrading. The Executive Yuan and the Legislative Yuan adopted the Draft Amendment of Regulations for Promoting Industrial Upgrading on March 25,199, and the new revision of Regulations for Promoting Industrial Upgrading came into force as of 1 January 2000, with a duration of ten years. To keep in line with the implementation of the Regulations for Promoting Industrial Upgrading, since 2000, the new Ten Rising Industries after readjustment are communications, IT, semiconductor, consumption electronics, precision machinery and automation, aviation and aerospace, biochemical pharmaceutics and bio-technology, medical and health care, environmental protection and premium grade materials. It is thus apparent that the IT industry possesses a most important position in Taiwan's industrial policies and is one of the industries for focused and prioritized development.
In spite of the economic stagnation in recent years, Taiwan has always attached great importance to scientific research. The expenditure in scientific research for 1991 was NT 81.8 billion, accounting for 1.66% of Taiwan's GDP whereas that in R&D for 1998 rose up to NT 17.71 billion, more than twice that for 1991 and accounting for 1.98% of the GDP.

3.2 Development Situation and Trend of Taiwan's Communication Industry
3.2.1 Construction of communications infrastructure system in Taiwan
As early as July 1996, Taiwan began to publicize the three-year medium-term development program for Information Superhighway, which was similar to the US NII. According to this program, it was anticipated that a total of 3 million people from a variety of enterprises and from 1 million households in Taiwan would set foot on the Information Superhighway via the Internet by the year 2000. Such a three-year medium-term development program involved the transmission of messages in the Chinese language on the Internet so as to increase the proportion of the Chinese language on the Internet. Taiwan's authorities concerned have invested a total sum of NT $3 billion to support such R&D program and in the meanwhile to further develop the asynchronous transmission mode network system in Taiwan and related technology and products such as network security, network computer and searching engine. A wave of logging on has been sweeping across Taiwan in recent years. In 1997 the number of Internet users in Taiwan was less than 800,000. That number reached 4.3 million according to the statistics of the end of November 1999.
The rapid growth of Taiwan's communication market began in 1998. At present, the communication industry is developing rapidly in Taiwan, with the density of telephones in urban residential areas reaching as high as 110 sets per hundred households. The digitalization rate of telephone exchanges had reached up to 82% within the island by the end of 1994, and up to 98% presently. The digitalized lines are mainly distributed in the densely populated northern regions, and with completion of digitalized alternation for the last hundred thousand lines, the scheduled target has been attained and the number of long distance lines has increased to 740,000.
Presently the Internet international outlet bandwidth of Taiwan Province has exceeded 16M, which includes three T3 lines and a number of T2 and T1 lines. Supported by the powerful bandwidth foundation, Taiwan Province has proposed a new program aiming at offering e-mail boxes to each and every student of all primary and middle schools, the desirable target being each primary or middle school student holding a set of computer, thus to improve and enhance the communications between the school and students' parents. To this end, authorities concerned appropriated NT $6.4 billion on October 1998 as the fund for primary and middle schools to buy computers and network facilities.
3.2.2 Development situation and trends of Taiwan's communications industry
According to the latest investigation and forecast report publicized by the Market Information Center of Taiwan Information Strategy Society, Taiwan's communications industry has developed rapidly over the recently years, and the communication facilities manufacturing industry, which includes the manufacturing of wireless terminal and wire line communication facilities, communication transmission facilities and local exchanges among others, reported a total sales value of US$ 2.1 billion for 1999; the year 2000 witnessed an increase rate of 55% with the sales value totaling US$ 3.26 billion; the sales value reached US$ 4.74 billion for 2001 and is expected to reach US$ 6.92 billion for 2002. The average annual growth rate during these four years reached a high of 47%. The above report has shown that the wireless terminal facilities enjoyed the most rapid growth in the communication industry over the recently years, with the sales value of products reaching US$ 300 million for 1998, and increasing to US$ 470 million for 1999; that for the year 2000 topped US$ 1 billion and the strong growth tendency is expected to continue for the next three years.
The communication industry in Taiwan has imported equipment with larger capacities and higher efficiency. The present international termination has 9 high-speed data swapping circuits and is interconnected with Taiwan regional telephone exchange network and Taiwan data packet exchange network to provide fast grouped data communication services of permanent connection type dedicated line and dialing connection type. In the packet exchange public data network, they are set up to meet the active demand of the communication market for digital communications. In 1994. Taiwan for the first time imported 720-ported packet exchange public data network. Through continuous expansion for more than ten years, the system reached a total capacity of 10000 terminal ports by 1999, with a main network center set up in northern, middle and southern Taiwan respectively as well as 5 sub-centers. All these centers are equipped with packet or digital exchanges and different centers are interconnected by means of high-speed relay data circuits. At the northern Taiwan main center, the system is connected to the overseas packet exchange network by means of the international high-speed data circuit with multi-path X. 75 communication interface, so that users in the Taiwan region are able to communicate with at least 127 data exchange networks in 46 countries and regions so as to exchange information.
The communication interface of the packet exchange public data network adopts CCITT international standard, such as X.25, X.28, X.29, X.31, X.32 and X.75, etc., as well as IBM SNA/SDLC and POINT OF SALE. The range of speeds is from 300bPs to 64KbPs; it also provides the TI speed. Users can choose either permanent connection type telephone network or dialing connection type to access the network. The packet exchange public data network has network or dialing connection type to access the network. The packet exchange public data network has network management and supervision/diagnosis functions, and can provide such special services as intrinsic virtual connection, extra logic channels and dedicated virtual network for intra-group communications. The current leasers include financial, insurance and credit industries, highway supervision organizations as well as administrative organs and armed forces.
In addition to the above two types of data exchange networks, Taiwan has a high-speed data exchange network aiming at the increasingly popular computer LAN system to adapt to the high-speed data communications necessary for decentralized processing with the LAN. The so-called high-speed data exchanged network is a public broad area data exchange network with characteristics of high speed, high efficiency and low retardation in tallying with the CCITT international standard. It provides frame transmission services to the users and can connect to the LAN and computers in the Taiwan region at a speed of 56kbps, 64kbps, NX64 kbps and 1.544Mbps.
For the first time Taiwan introduced the high-speed data exchange network and selected 6 terminal nodes with a total of 200 ports in northern, central and northern Taiwan as the first phase to provide frame transmission services. Each terminal node is equipped with an exchange and different nodes are interconnected by means of TI or T3 high-speed data circuits. When the users have enjoyed the high-speed data communication service, the connection mode and network management become simpler, maintenance becomes easier, and the users can change the communication frequency and increase the speed any time. This network allows the large-scale information networks of the finance, taxation, research industrial and commercial administration, medical and health work and academic institution to offer rapid data exchange services. It adopts the open-type standard specifications to connect with various LAN architectures. The communication industry in Taiwan plans to further expand and improve the high-speed data communication network so that users in the Taiwan region can exchange various information with global high-speed data exchange networks through it.
In order to set off anew upsurge of Internet Craze in Taiwan, relevant authorities have set up Internet shows in various places in Taiwan including more than 30 units such as the Imperial Palace Museum, the History Museum, small and medium sized international airports and cultural of counties and cities. Each of these units is equipped with scores of PCs connecting to the Internet via dedicated lines for the need of Internet accession of common citizens. As the PCs in these units are open to the public rather than limited for their own use, they greatly facilitate the promotion of the Internet to the public, the rapid popularization of household computers and the rapid growth in the number of the logging-on.
There are presently 18,000 websites in Taiwan Province, 86% of which belong to the companies them-selves and are mainly used for their public relations, product publicizing, sales activities and customer services. With the emergence up of e-Commerce, the companies are attaching great importance to the construction of the enterprises' upstream and downstream supply chains. As the Internet has apparent cost advantage as compared with the EDI,, more and more companies have begun to conduct procurement, ordering and settlements as well as product marketing on the Internet, and enjoyed the first convenience that e-Commerce brings along. Therefore relevant authorities in Taiwan have set out to actively promote the development of e-Commerce, beginning with the product categories that are suitable for selling on the Internet, such as consumption electronic products, software, books and flowers. It is believed in the trade that building of the certification authentification (CA) is the key to the development of e-Commerce, and the desirable case is to have a complete tree shaped CA system, that is, a system with only one most authoritative CA center that every department and industry recognizes. However, it is also understood in the trade that it is impossible to achieve such an objective during the preliminary stage of development of e-Commerce; rather, it is essential to take advantage of the similarity of business, the complete system and the uniform standard within the industry to set up the trade specific CA. Strictly speaking, the CA should be assumed by a third party that basically does not take part in any transaction. But very likely the CA in the preliminary stage can not keep away from the involvement of competent departments of the trade. The rapid development of e-Commerce in Taiwan will promote the rapid growth in the number of people concerned and the speedy development of the e-Shopping market. The market scale of e-Commerce in Taiwan was NT$ 3.2 billion for 1997. With the increase in the number of people accessing the Internet, the e-Commerce market scale increased to NT $21 billion for 1999, and further increased by a large margin Taiwan Information Strategy Society on the Internet shopping behavior of Internet users for the year 2000, 32% of the Internet users have gone on-line shopping via the Internet, 6.6 times per person on average, with an average amount of NT $2300 each time. The commodities purchase mainly include computer and peripheral facilities, software, audio disc, household electrical appliances and flowers.
3.2.3 Competition pattern and developmental trend on the telecommunication Market within Taiwan Island
With a population of over 21 million in Taiwan Province, the number of fixed telephones has reached 12 million with the popularization ratio exceeding that in the US. The government-run China Telecom had monopolized the communication market in Taiwan before 1997. Since 1997, with the government's efforts to break the monopolization in the communication industry, the market share of China Telecom has decreased to a certain extent. However, it is still the largest telecommunication company and also the government-run company with the highest profit gains in Taiwan. The after-tax profit of the company for the fiscal year from July 1998 to June 1999 reached US$ 2 billion, its assets amounting to nearly US$ 15 billion, with the income from fixed telephone business accounting for about 80% of the company's total income. With a total of 1.8 million Internet users, it is also the largest Internet Service Provider (ISP) in Taiwan Province.
Influenced by the telecommunication liberalization tide which has swept across the world Taiwan's telecommunication industry will also enter into a new competition pattern. The monopolization of the government-run China Telecom in the communication industry in Taiwan Province will be put to an end. The government authorities in Taiwan opened the mobile communication market as early as 1997, which resulted in fierce competition. Six newly established mobile communication companies have snatched more than half of the market shares from the government-run China Telecom. With granting of the new licenses, telephone subscribers of the fixed communication network may choose from different companies since July 2001. Among those which will soon join in the communication market competition are not only various cable TV companies, but also companies in other industries such as Taiwan Railway Administration, Taiwan Electric Power Co. and China Petroleum. Co., Companies that have obtained the new licenses may operate such businesses as local, long distance and international dial telephone, wideband exchange and high-speed data communications. However, Taiwan authorities only plan to grant two licenses for fixed t4elephone network in the near future, and the market will not be fully opened until 2004. In spite of all that, the current opening of the fixed communication market has resulted in intense competition.
A resolution was adopted by the Executive Yuan of Taiwan only 13 November, 2001 to increase the ceiling limit of direct share-holding in the telecommunication industry by foreign capitals from 20% to 49%, maintaining the stipulation that the direct and indirect share-holding proportion of foreign capitals in Taiwan's telecommunication industry shall not exceed 60%, s as to attract foreign capitals to invest in Taiwan's telecommunication industry. This has indicated that Taiwan is enhancing the opening up of the communication market.

3.3 An Analysis on Electronic Information Product Market in Taiwan
3.3.1 Overall analysis on electronic information product market
The market amount of electronic products in Taiwan was US$ 19.554 billion for the year 1999, a 5.9% increase over 1998, among which, that of electronic components ranked first, amounting to US$ 12.332 billion, a 7.3% increase over 1998, and accounting for 62.9% of the total market amount. Followed next were electronic data processing products, which enjoyed a market amount of US$ 2.983 billion, a 8.0% increase over 1998, accounting for 15.2% of the total. Still next were communication/radar products, which enjoyed a market amount of US$ 1.301 billion, down 2.0% from 1998, accounting for 6.6% of the total.
Among the major Asian countries and regions in 2000 (excluding Mainland China) in terms of market share of electronic products, Taiwan Province of China ranked third only next to Japan to Korea. The market amount of Taiwan's electronic products reached US$ 20.89 billion for 2000, up 7% over the preceding year, accounting for 8% of the total electronics market amount in Asia. The total amount of electronic information products in Taiwan Province was US$ 22.417 billion for 2001, up 7.3% over 2000, maintaining a trend of rapid growth.
The foreign trade of electronic information products is quite active in Taiwan. The amount of exports of electronic products was US$ 39.066 billion for 1997, among which, that of the electronic data processing products ranked first at US$ 21.613 billion, accounting for 55.3% of total exports; electronic components followed next with an export of US$ 14.102 billion, accounting for 36.1% of total exports. The amount of export of electronic products for 1998 was US$ 37.949 billion, down 2.9% from 1997. The total amount of imports of electronic products in 1997 and 1998 was US$ 21.392 billion and US$ 22.871 billion respectively, maintaining a high favorable balance of trade.
3.3.2 Market analysis on various electronic products in Taiwan
(1) Cellular Phone
Before 1998, the mobile telephone market was dominated by Motorola Inc. of the US, which held a market share of 90% in Taiwan's cellular market. In September 1998, the DBTEL, Inc. of Taiwan began to put out mobile cellular phones of new designs in large quantities to snatch the mobile phone terminal market with satisfactory sales. Taiwan's enterprises in the industry were thus encouraged and immediately followed suit. In 1999, Taiwan's BENQ and Zhifu (致福)Co. put out their new designs of cellular phones and started an upsurge of cellular phones. Since the beginning of this year, DBTEL, Inc., BENQ, Xingmeng (兴门)and Zhifu(致福)have continuously put out new styles of cellular phones with a large variety, Jhua (句话) GSM single-frequency and dual-frequency cellular phones, CDMA cellular phones as well as WAP cellular phones, etc., and increased the output of cellular phones according to market demand, aiming at the target of 10 million sets.
Production of cellular phones in Taiwan this year has experienced a drastic increase in total delivery from vault and has become a new impetus to drive the rapid development of the communication industry in Taiwan. The mobile phone craze first originated in Taibei, Taichung and Kaohsiung, and digital cellular phone services also started to be provided in the broad countryside in the past two years.
The development of Taiwan's cellular phone manufacturing industry has kept pace with the global wave of competing in the rapid development. In 1999, the global total delivery of cellular phones was 280 million sets. This figure will increase to 782 sets in 2002 and is expected to break 1 billion in 2003. The total delivery of cellular phones from vault in Taiwan broke 10 million sets by the end of 2000 and will hopefully hit 59 million in 2002, accounting for 7.55 of the global total.
(2) TFT-LCD
After China's Taiwan has expanded the production capacity of the TFT-LCD industry on a large scale, a high-level figure from the specialized market research company Display Search pointed out that in view of the capacity expansion plans of various enterprises in Japan, Korea and China's Taiwan Province, the production capacity of he TFT-LCD industry in Taiwan has enjoyed a global market share of about 25% in zoo and will rise to 32%, hopefully exceeding that of Korea and rendering Taiwan the second largest TFT-LCD production base globally only next to Japan in 2002.
After more than 1 years of continuous downslide in the price of the large-size TFT-LCD motherboard, the ever high production cost in Japan has caused an ever worsening situation in respect of total amorphous silicon TFT-LCD motherboard delivery. According to the previous statistics of the Display Search, in the second quarter of this year, the global total large-size TFT-LCD motherboard sold had reached about 10.50 million pieces, of which Japanese enterprises contributed about 35.7%, Korean enterprises about 41.5% and Taiwan's enterprises about 22.7%.
As regards the capacity of TFT-LCD production lines, after transferring the technology to Taiwan Province of China, the action of Japanese enterprises to expand amorphous silicon TFT-LCD production almost stopped. Only Taiwan and Korea are still taking action of expanding capacity. In Korea, Sung Sam Electronics has currently a total of 4 TFT-LCD motherboard production lines under it; LG. Philips LCD has 3 production lines (and another 5th generation production line which is under equipment assembling with low capacity); Hydis under Hyundai Group has 3 production lines, also with low capacity.
In contrast, among Taiwan's enterprises, five large-size amorphous silicon TFT-LCD plants including Youda (友达), CHIMEI(奇美), Chunghua Picture Tubes, Ltd.(华映), HannStar (潮宇彩晶) and Quanta Display, Inc. (广辉电子), have a total of 11 TFT-LCD production lines, and their capacities are still expanding. Figures inside the trade hold that although both Sung Sam and LG. Philips have subsequent plans for expanding the production lines of the 5th generation (5G) TFT-LCD, up to now, their actual equipment procurements is still slow, therefore the time for their 5G production lines to come into volume production will be after the fourth quarter of 2002. In view of this, the overall production capacity of TFT-LCD in Taiwan will very likely exceed that in Korea.
(3) Network Card market
Wide frequency-band equipment has driven the growth of the market. As Wu Xiandong, an industrial consultant for the Market Information Center of Taiwan Information Strategy Society, points out in the report, by the end of 2000, the ADSL programs of all Internet Service Providers (IPS) adopted the low price strategy one after another, resulting in a buying spree in the consumption market; by the end of 2000, the market scale of network cards within the Taiwan Island reached NT $6.05 billion, up 74.2% over the same period of 1999; the steady growth in local area network cards caused the result that the wide area network cards as demanded by wide frequency-band equipment procurement have driven the growth in network cards by a large margin. As Wu Xiandong estimated, the market scale of computer network cards within the island will reach up to NT $ 1 6.4 billion for the year 2002; however, as the year 2002 is at the construction boom, next year will witness a situation of slowdown.
It has become a trend to build network card inside PC. Concerning the sales of network cards, as the built-in network card has become a trend for brand PC delivery (68.5%), and almost all built-in network cards for NB are for sale, the market volume will gradually shrink. Moreover, the proportion for PC to bind LOM has reached 17.2%, and the development trend will be the development mode of graphing cards. In respect of the WLAN, enterprises in the Taiwan Island have entered the phase of volume production, and along with the fierce price competition and improvement of customer recognition, it can be said that the WLAN market is stepping into the maturity phase. Wu Xiandong points out that the GbE network card market was still in the embryonic stage, with the 10M and other network cards such as the ATM shrinking Transducers are gradually taking the place of concentrators. Since 1999, the price of the transducer has not been higher than double that of the concentrator, which has accelerated the replacement effect of the concentrator by the transducer. In spite of that, owing to the high sensibility to the price, especially for small and medium-size enterprises and households which have no particular demand for wide frequency-band, the non-stackable concentrator still enjoys a certain market space.
(4) Other electronic information products
The following Table shows the market situation of major electronic products in Taiwan from 1998 to 2000. It can be seen from the Table that the electronics market in Taiwan has maintained a high-speed growth.

3.4 Overview of the Development of IT Industry in Taiwan
The total revenues of the five major industries of hardware, software, computer network, information household electrical appliances and communications reached US$ 55 billion for the year 2001, down 5% from 2000, the first time of negative growth in Taiwan's IT industry development in the past two decades. However, according to the forecast of the Taiwan Information Strategy Society, the revenues of the above five major industries in Taiwan will reach up to US$ 60.7 billion for the year 2002, an increase of about 10% over 2001.The following Table shows the situation of revenues of Taiwan's IT industry for 2001

The output value of electronic products in Taiwan was US$ 33.574 US for 1998, down 7.4% from 1997, among which, that of electronic data processing products ranked first, amounting to US$ 19.355 billion and accounting for 57.6% of the total; followed next are electronic components with the output value of US$ 10.713 billion accounting for 31.9% of the total; still next are telecommunication products with the output value of US$ 1.702 billion accounting for 5.1% of the total.
The output value of electronic products in Taiwan was US$ 36.225 billion for 1999, up 7.9% over 1998, among which, that of electronic data processing products ranked first, amounting to US$ 20.903 billion, up 8.0% over 1998 and accounting for 57.7% of the total; followed next are electronic components with the output value of US$ 11.740 billion, up 9.6% over 1998 and accounting for 32.4% of the total; still next are telecommunication products with the output value of US$ 1.753 billion, up 3.0% over 1998 and accounting for 4.8% of the total. The output value of electronic products in Taiwan was US$ 38.622 billion for the year 2000, up 6.6% over 1999, among which, that of electronic data processing products increased by 6.0%, that of electronic components increased by 9.1% and that of telecommunication products increased by 2%.