Increasing specialisation and division of labour around the globe has resulted in the relocation of even higher value-added production, including those from Taiwan, to the Chinese mainland. This is along with increasing Taiwanese investment on the mainland, especially in the PRD and YRD regions, as well as surging mainland/Taiwan bilateral trade. These business deals are largely related to higher technology products like semiconductors, IT and electronic items.

• In the process, the Taiwanese economy has not hollowed out. On the contrary, this has greatly enhanced the production capabilities of Taiwanese technology companies, while facilitating their access to the mainland market.

While the Chinese mainland is keen to upgrade its industry structure, in particular to expedite the development of a high-tech industry sector, technological cooperation across the strait is set to rise further and faster. However, mainland/Taiwan cooperation is constrained by the lack of desirable support in such areas as financial, legal (IPR protection) and logistics services. These have particularly limited the development of mainland-based Taiwanese businesses. Given that Hong Kong is a technology marketplace that excels in technical and supporting services to technology businesses, the participation of Hong Kong has furnished the right levers for Taiwanese technology companies to expand their trade and investment on the mainland.

Mainland/Taiwan Technological Cooperation - via the Hong Kong Platform

Increasing Taiwanese investment, especially in high-technology production on the mainland, has resulted in a surge in mainland/Taiwan bilateral trade. About a fifth of such products trading across the strait, mainly electronics and electrical products, are re-exported via Hong Kong. This is not a coincidence. In fact, the electronics industry is the largest trading cluster in Hong Kong. This electronics cluster has greatly enhanced the efficiency and competitiveness of Hong Kong in technology application and engineering services.

Indeed, Taiwan's edge lies in front-end R&D, and Hong Kong is good at back-end application and commercialisation. Given their differences, there are certain complementarities between Taiwan and Hong Kong in the development of their technology industries amid the exploration of opportunities on the mainland.

Distribution via Hong Kong's Industrial Marketers

Taiwanese suppliers have long been not only supporting Hong Kong's manufacturing activities especially on the mainland, but also jointly exploring the mainland market with Hong Kong distributors and agents.

• Many electronics traders here are the agents for Taiwanese integrated circuits, semiconductors, electronic parts and components, rendering engineering and consultancy solutions for their clients in Hong Kong and on the mainland.

Using Hong Kong as a System Integration and Application Centre

To utilise platform functions here to support their sales to the Hong Kong and mainland markets, some Taiwanese companies have already set up offices in Hong Kong.

• Reputable Taiwanese companies like Macronix and Winbond have not only set up a sales force here, but also design engineering teams to support business operations in the region. Other companies with a presence in Hong Kong include EMC, Sunplus and Silicon Integrated Systems.

Financing Mainland-based Taiwanese Operations

Despite the limited presence of Taiwanese financial institutions in the mainland market, Taiwanese technology companies can obtain various types of financial facilities in Hong Kong to fund their mainland-based operations.

• Offshore banking: A number of Taiwanese banks have set up offices here to serve their Taiwanese clients. As at the end of August 2007, a total 16 licensed banks in Hong Kong originated from Taiwan (by incorporation), while another three banks incorporated in Taiwan had local representative offices here.
  
  
• Equity financing: Listing on the Hong Kong stock exchanges provides another option for financing. As at the end of July 2007, around 52 Taiwanese companies, including technology players like Foxconn, Proview and TPV Technology, were listed on the Hong Kong Exchanges, with a market capitalisation of some HK$347 billion.
  
  
• Venture capital management: Hong Kong is the largest venture capital management centre in Asia, with a readily available source of capital for funding Taiwanese technology projects and investment on the mainland. Some venture capitalists here, such as the Asian Direct Capital Management and the AsiaTech Ventures Ltd., consider Taiwan as one of their target markets for investment.

Protection of Intellectual Property Rights

IPR infringement is a big concern of Taiwanese technology companies in their operations on the mainland. Technology transfer and other IPR-related transactions via Hong Kong can be better managed with enhanced protection.

• Taiwanese companies can make use of Hong Kong's legal facilities to enforce awards/judgments as regards protection of their IPRs in Hong Kong and at the same time on the mainland, as Hong Kong has had certain arrangements with the mainland on mutual recognition and enforcement of arbitral awards and court judgments over civil and commercial matters.

Logistics Services for High-technology Products

Along with the spread of Taiwan's presence from the PRD to the YRD region and beyond, there is an increasing demand for logistics services from Taiwanese technology investors. Logistics services providers from the two places can join forces to strengthen one another's networks, capitalising on the increasing demand from such technology players.

• While some Taiwanese logistics players like Dimerco and Fly-Time have a presence in Hong Kong, a number of Hong Kong services providers, such as Kerry Logistics and BALtrans Logistics, have also established offices in Taiwan in order to handle increasing mainland-Hong Kong-Taiwan logistics business.

All in all, Hong Kong is well positioned as a marketplace for facilitating technological cooperation across the strait.

This new report is available at TDC's Retail Outlets. It can also be purchased through the TDC Bookshop section in the TDC's trade portal: info.hktdc.com.