China consumer splurge boosts Asian tech sector

TAIPEI, TAIWAN: China's $600 billion in stimulus spending is single-handedly driving a recovery in Taiwan's technology sector and in the Asian industry as China moulds itself into an electronics consumer and not just an exporter.

Taiwan's top chip foundries, display and PC makers, reeling from slumping orders in the United States and Europe, have found a new benefactor in neighbouring China, which has placed billions of dollars in orders to meet rural consumer demand for PCs, cellphones and flat-screen TVs since earlier this year.

That buying spree has lifted not only Taiwan firms, but in some cases entire sectors, most notably liquid crystal displays (LCDs), with many firms in South Korea and Japan also reporting a sharp turnaround in their latest business results.

"There is a very big room for imagination when you talk about potential of those companies that are selling into China," said John Chiu, a fund manager of Taiwan's Fuh Hwa Securities Investment Trust.

Optimists say China's new appetite for technology products could mark the start of a longer-term buying binge as consumers gear up for a new crop of gadgets, including 3G cellphones and low-cost netbooks requiring chips, panels and other key components.

But more conservative market analysts warn the buying rush could also quickly fade as stimulus dollars run out.

Beijing announced in November a 4 trillion yuan ($585 billion) two-year spending plan to stimulate economic growth.

Since the first announcement, government officials have provided additional details about how the money is going to be spent.

Research house DisplaySearch believes China could account for up to 20 percent of the global LCD TV market by 2011, up from 13 percent in 2008 and overtaking Western Europe as the world's No. 2 consumer after North America.

That's a strong incentive for major Taiwanese companies which are taking advantage of a shared culture and language to grab a bigger slice of the lucrative Chinese market.

Most of Taiwan's top technology names, including chipmakers TSMC and UMC, LCD makers AU Optronics and Chi Mei and PC makers Acer and Compal, have sharply boosted their outlook in the last two months, nearly always citing some RUSH orders from China.

Taiwan's electronics exports to China have also rebounded strongly from a low in January.

More than a decade after becoming a global manufacturing hub for everything from textiles to PCs, China is moving to rebalance its economy with greater focus on domestic consumption to insulate it more from negative effects of global downturns that cause exports to slow.

As part of its drive, China has lowered interest rates, encouraged banks to step up lending and unleashed hundreds of billions of dollars in stimulus spending.

"Go Out and Shop More"

Closer trade ties across the Taiwan Strait and hopes of an influx of Chinese investment to the island under a year-old China-friendly administration have fuelled strong purchases in local technology shares, helping push the main TAIEX to its highest level in eight months.

Taiwan's stock market has been the world's best performer open to foreign investors this year, up 43 percent, as investors increasingly see its technology and other major firms as plays on China's buoyant economy.

"For the rest of 2009, our investment suggestion is simple -- stick with companies that have high exposure to China and handsets," said Kenneth Lee, vice president of research department of Taiwan's Fubon Securities Investment Trust.

Lee's top picks are UMC and Mediatek, which sells chips to Chinese cellphone vendors who lack a well-known brand name, as he expects loss-making UMC to return to profit this year and Mediatek's EPS could grow 42 percent.

Analysts say AU and Chi Mei could also reap bigger profits in China, home to some of the world's biggest TV makers, including TCL Multimedia and Skyworth Digital.

The rising fortunes of companies such as AU and Chi Mei has sent ripples through the global LCD industry, lifting business and shares of South Korea's Samsung Electronics and LG Display and Japan's Sharp Corp.

"Lots of people (in China) used to put the money they earned into their pockets, but in the future they will go out and shop more," said Paul Peng, executive vice president of AU Optronics, the world's No.3 LCD maker, whose panels go with mobile phones, laptops and flat-screen monitors and TVs.

Still, some experts say China's eventual transition away from export-led growth remains a question mark as the move won't be quick or easy.

"China is just a part of the world and we should not overly focus on China and ignore other countries," said Chen Po-chih, chairman of Taiwan Thinktank, an independent public policy research organization.