China's push for tech self-sufficiency threatens Asia's exporters

China’s rampant economic growth has been a boon for exporters in Japan, South Korea and Taiwan, who’ve supplied high-end components and machines for its factories. The risk for them now is that China changes from customer to competitor as it ascends the value chain.

Japanese shipments to China reached a record $130 billion in 2017, leading an export-driven economic recovery that’s run for eight-straight quarters. Korean sales to its neighbour have jumped 70 percent in a decade, while shipments from Taiwan climbed to an all-time high.

Yet a deeper dive into the data highlights the threat. Take the trade in semiconductors — and the machines to make these microchips. Sales of the components from firms like South Korean tech giant SK Hynix  have helped drive export growth into China from the rest of North Asia.

But at the same time, there’s been a spike in sales to China of precision metal working machines and equipment for making chips from firms like Japan’s Yaskawa Electric.  With a Chinese state-backed fund gearing up to pour as much as $31.5 billion into homegrown semiconductor manufacturing, there’s potential for trade flows to start to shift.

China’s ambitions, set out in its sweeping Made in China 2025 plan, go much further than semiconductors and would see its technical prowess advance in a host of areas, ranging from bio-medicine and artificial intelligence to new-energy vehicles and aircraft. The challenge to Japan, Korea and Taiwan also applies to European exporters like Germany, and comes on top of the risks to global trade from the Trump administration’s embrace of tariffs.

Tom Orlik, Bloomberg’s chief Asia economist, said it’s only a matter of time before many components for electronic products are made domestically and the country is on track to become a car exporter. Eventually, it will be selling airplanes, said Orlik.