Two directions for Taiwan

Bruce Einhorn

From Taiwan this week, another sign of how politics is heading in one direction, the IT industry in another. Independence-minded President Chen Shui-bian on Feb. 27 announced plans to scrap Taiwan’s “National Unification Council,” which was supposed to work toward the goal of reuniting the island with the mainland. The move of course is almost completely symbolic. Chen’s government is so loathed in Beijing that the two sides barely speak to one another about anything, let alone unifying the motherland.

Chen’s announcement probably has more to do with domestic politics and shoring up support for his Democratic Progressive Party, which suffered an embarrassing defeat in legislative elections last year and faces an uphill battle in 2008 to keep the opposition Kuomintang from recovering the presidency when Chen’s term expires. Chen’s timing is revealing: After announcing the move on Monday, he followed through on Tuesday, the anniversary of the infamous Feb. 28, 1947 crackdown on Taiwanese by troops from the mainland under Kuomintang dictator Chiang Kai-shek.

Antagonizing Beijing doesn’t come cheap, though. The same day as Chen’s big speech, DigiTimes, Taiwan’s leading IT newspaper, reported some bad news for the island’s tech sector. Sales from companies based in the Hsinchu Science Park, Taiwan’s biggest and the home of high-tech heavyweights like Taiwan Semiconductor Manufacturing Co. and United Microelectronics, suffered a 7% drop last year, to just over $30 billion, the paper reported. That’s partially because of a cyclical slowdown in the chip industry, and companies are continuing to invest in Hsinchu. But revenue for the computer and peripheral sector plunged 26%, to $3.15 billion. That’s not a cyclical blip, it’s a structural change related to Taiwan’s PC industry shifting production to China. The move to the mainland isn't going to stop. Executives from Taiwan’s top IT companies see their future there, regardless of what Chen wants.