TAIPEI: Beijing's $600 billion in stimulus spending is single-handedly driving a recovery in Taiwan's technology sector and in the Asian industry as China's mainland moulds itself into both an electronics consumer and exporter.

Reeling from falling orders from the US and Europe, Taiwan's top chip foundries, display and PC makers are increasingly looking up to the mainland, 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.

Optimists say the mainland'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, LCD 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's mainland 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 mainland 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 the mainland.

Taiwan's electronics exports to the mainland 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's mainland 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, Beijing has lowered interest rates, encouraged banks to step up lending and unleashed hundreds of billions of dollars in stimulus spending.

Closer trade ties across the Taiwan Straits and hopes of an influx of mainland investment to the island 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 the buoyant mainland economy.

Kenneth Lee, vice president for research at Taiwan's Fubon Securities Investment Trust, said his company's investment suggestion for the rest of 2009 is simple - stick with companies that have high exposure to the mainland market and handsets.

Lee's top picks are UMC and Mediatek, which sells chips to mainland 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.

"Lots of people (on the mainland) 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.

Reuters

(HK Edition 05/08/2009 page16)