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Walsin Lihwa Corporation

Soaring on the Wave of China's Domestic Demand

精華簡文

One Taiwanese enterprise is beating out Chinese, Japanese and Western firms in bids for major public projects, in the process becoming the biggest supplier of steel and copper wire in China.

Soaring on the Wave of China's Domestic Demand

By Jimmy Hsiung
From CommonWealth Magazine (vol. 372 )

"In this year’s rankings of the “Commonwealth Top 1,000 Listed Companies of Greater China,” Walsin Lihwa stands out as one of the most prominent Taiwanese business groups. Seven companies under its banner made the rankings: Walsin Lihwa Corporation (no. 92), TFT panel maker HannStar Display Corporation (no. 188), Winbond Electronics Corp. (no. 304), Walsin Technology Corporation (no. 638), multiplayer printed circuit board maker HannStar Board Corporation (no. 747), Hong Kong-listed spin-off HannStar Board International Holdings Limited (no. 929), and chip packager and tester Walton Advanced Engineering (no. 978).

Walsin Lihwa Group’s current success can be directly credited to setting up operations throughout Greater China, and doing so earlier than others.

Going after Opportunities

Walsin Lihwa Group founder Chiao Ting-piao was born in 1924 in Jiangyin, Jiangsu Province in China. After graduating from elementary school, he left home to seek his fortune in Shanghai. In 1948, the civil war was making conditions in China increasingly tense, and Pacific Wire & Cable chairman Sun Fa-min decided to move part of his business to Taiwan. Chiao, an employee of the company at the time, was one of those willing to go.

After arriving in Taiwan, Chiao first worked for Pacific Wire & Cable, and then founded steel- and aluminum-wire producer Walsin, which later merged with the Lihwa Company, an electric wire and cable maker.

Starting in the countryside of Jiangyin and diligently pursuing a career in Shanghai, Chiao found himself in Taiwan, where he began building the Walsin Lihwa empire, step by step. Much like most self-made entrepreneurs, he was willing to boldly test new ideas and had more daring and wisdom than others. Whenever he saw a new market or opportunity, he was willing to fight for it.

In Taiwan, for example, Walsin Lihwa was the only conglomerate that jumped into DRAMs and TFT panels at the same time. It was a risky concept, because semiconductors and optoelectronics — each a trillion NT dollar sector — are not only capital intensive but also highly vulnerable to economic fluctuations. Now, Chiao’s oldest son, Arthur Yu-cheng Chiao, runs DRAM semiconductor maker Winbond Electronics, while his youngest son, Yu-chi Chiao, guides HannStar Display Corporation.

Walsin Lihwa did not limit itself to searching for opportunities at home. When Taiwan put its industrial focus on the high-technology sector, Chiao Ting-piao sensed there were opportunities to be had in China and made his move.

As far back as 1988, when Taiwan had just begun allowing citizens to visit relatives in China but still frowned on commercial exchanges, Kao Wei-ting, now vice chairman of Jiangyin Walsin Steel Wire and general manager of the group’s Steel Wire Division, was sent to China to survey the market. By that time, Chiao Ting-piao had been ill for 10 years and his second son Yu-lon Chiao had begun handling the management of Walsin Lihwa.

“That was an era when heroes were born. The outside world was not familiar with China’s market. Only if you had guts and smarts would you have dared to make a move in China,” Kao says.

Standing on the front-line of China’s biggest copper wire distribution center, Nanjing Walsin Metal Co. general manager Cheng Chun-wu has not flinched as copper prices have soared three-fold over the past four years.

China’s Demand Rises, Walsin Lihwa Soars

After opening its economy in the 1990s, China entered a period of investment-driven development, with the government and private sector investing heavily in infrastructure projects, resulting in a sudden rise in domestic demand.

Anticipating this rising demand, Chiao Ting-piao spurned the early procession of Taiwanese businesses to Guangdong province and the Pearl River delta, instead establishing a foothold in the Yangtze River delta at just the right time. The copper tubing, electric cable, stainless steel and other wire and cable material industries were beginning to take off in the river delta’s cities, extending from Shanghai and Changshu to Jiangyin and on to Nanjing.

Chiao Ting-piao focused on the Yangtze River basin in part because of his nostalgia for his hometown of Jiangyin, but also because he was targeting China’s domestic market. By establishing his factory on the banks of the Yangtze River to facilitate transportation, he was able to capitalize on the boom in China’s infrastructure to launch his company’s success.

Today, Walsin Lihwa is China’s largest supplier of steel and copper wire and among the top three suppliers of high-voltage electric wire and cable. The company has been instrumental in providing the materials used in eastern China’s basic electricity infrastructure.

Walsin Lihwa’s operating results have been outstanding, benefiting from China’s feverish drive to build basic infrastructure and substantial rises in raw material prices in recent years. The company’s sales nearly doubled last year to NT$123.4 billion, while earnings grew by 540 percent to NT$8.47 billion.

Traveling along the Yangtze River or along China’s east coast, one can see how deeply rooted Walsin Lihwa is in China.

The company has had its hands in many well-known bridges in China, including the Jiangyin Yangtze River Bridge, at one time China’s longest suspension bridge, the Guangdong Humen Bridge, the Xiamen Haicang Bridge, the Runyang Yangtze River Highway Bridge and the Sutong Changjiang Highway Bridge.

“Walsin Lihwa has had some involvement in almost all of the Yangtze River’s suspension bridges,” said Jiangyin Walsin Steel Cable Co., Ltd. general manager Eric Y.R. Liu.

Liquidity and Networking

Walsin Lihwa may be the Taiwanese enterprise that has prospered the most by targeting China’s domestic demand. It now has a product line there that includes copper wire, electric cable and specialty steel products such as stainless steel tubing and steel bars, all of which are quiet, steady cash cows.

China’s booming market demand is obvious to all, but that doesn’t mean every company understands how to profit from it. On the one hand, Chiao Ting-piao’s profound knowledge of raw material markets enables him to keep generating the liquidity needed to procure raw materials. At the same time, his consummate skill at interpersonal networking gives him the inside track on construction project bids.

In Walsin Lihwa’s new and expanded copper wire factory in Nanjing, covering the floor are multiple bundles of steel rod coils half the height of a person, and shiny copper wire coils stretching as far as the eye can see, which in today’s market are even more precious than gold. This factory is now the biggest supply source of copper wire in China.

It may not seem that the threshold for entering the copper wire business is very high, but the amount of capital needed to support such an operation is massive.

Nanjing Walsin Metal Co., Ltd. general manager Cheng Chun-wu explains just how much capital is required. With a capacity of 20,000 tons of copper wire a month, and with the market price of copper at Rmb70,000 per ton, his plant needs a liquidity of at least Rmb1.4 billion every month. And that doesn’t include inventory or receivables.

“The know-how of the business is really balancing the ‘unknown average costs’ of purchasing and financial management that lie behind making the product,” Cheng says.

Another challenge is that the electric wire and cable, copper wire, steel strand, and other materials Walsin Lihwa supplies are mostly used in China’s big public infrastructure projects. These commercial opportunities are not easy to come by, but Walsin Lihwa seems to have the knack of winning the tenders it contests.

Kao Wei-ting reveals that when developing business in China, companies cannot rely on normally accepted practices to run their businesses. Walsin Lihwa is consistently able to come out on top in project bids, Kao says, by relying on its familiarity with the intricate web of relationships connecting China’s political and commercial circles and its understanding of the rules of the game.

Twenty years ago, China was a virgin territory waiting to be developed. Two decades later, international capital is pouring in like a fountain of life, and Chiao Ting-piao sees a new opportunity.

Raising Capital in Hong Kong for the Future

At the end of last year, HannStar Board Corporation, which specializes in PC boards for notebook computers and still has Chiao Ting-piao listed as its chairman, successfully listed on the Hong Kong Stock Exchange under the name HannStar Board International Holdings Limited.

Almost from its inception, HannStar Board began taking advantage of resources in all three parts of Greater China: it launched its business in Taiwan, made China its main manufacturing base, and went to Hong Kong to raise capital.

A smooth management transition from one generation to the next has enabled Walsin Lihwa’s steel cable products to play an important role in ground transportation along China’s coast and rivers.

“Its plan was on the money from the outset,” says C.Y. Huang, Polaris Financial Group's CEO for Greater China capital market investments. This explains why HannStar Board has been able to rise to the top so quickly.

Founded in 1989, HannStar Board spent a decade as a second-tier supplier ranked outside the top 20 PC board manufacturers. But the company grew rapidly after moving to China in 2002 and expanding its production capacity. It started building its China facility at breakneck speed at the end of2002 – it was up and running by the following July and was producing at full capacity by the end of 2003. In a span of only five years, HannStar Board’s capacity has grown five-fold, and it is now the world’s largest supplier of multilayer PC boards for notebook computers, with a global market share of about 30 percent.

Multilayer PC boards have a wide range of applications. They are not only used in laptops, but also in game consoles, set-top boxes and other electronic items. To finance its rapid expansion to meet this growing demand, HannStar needed to raise capital.

“Listing in Hong Kong gave us another avenue for raising capital, and one that provided quick results,” said HannStar Board International Chairman Chiao Yu-heng in explaining why the company chose Hong Kong to take its spin-off public. He also evaluated the P/E ratios of the Taiwan and Hong Kong markets, and felt Hong Kong’s stock market was more advantageous.

Spanning traditional and high-tech industries and integrating the resources of the Greater China region, the Walsin Lihwa Group has completed the transition from founder Chiao Ting-piao to a second generation of leaders and has now embarked on grooming a third generation of management talent in Taiwan, Hong Kong and China. They all continue their efforts to carve out their own territories, benefiting from the strong foundation Chiao Ting-piao has left them.

Chiao Yu-heng (HannStar Board International Chairman):

The Limits to Listing in Hong Kong

HannStar Board International’s public listing in Hong Kong can be analyzed at two different levels.

Around 1996, Walsin Lihwa had a publicly listed company in Hong Kong and was very familiar with regulations there related to going public.

The benefit of listing in Hong Kong was that the P/E ratio for printed multilayer circuit boards was acceptable and enough capital could be raised to finance rapid expansion in China.

On the other hand, some people believed that for those companies listing in Hong Kong, the sky was the limit. Actually, that’s too optimistic, and it wasn’t my original intention in making the move.

As a Taiwanese enterprise, you still have to abide by Taiwanese regulations when listing overseas. Investments abroad must adhere to the norms set by the Republic of China’s Investment Commission under the Ministry of Economic Affairs. For any Taiwanese company anywhere in the world, any funds invested in China must be reported to the Investment Commission

For example, after going to Hong Kong, we discovered a good Shanghai company that we wanted to invest in. According to regulations, we had to report this to the Taiwanese government. The ROC government can still go after you if it wants. After all, we are ROC citizens.

I believe that going public in Hong Kong was an excellent way to raise capital. Whether or not there are downsides is debatable. Hong Kong’s securities law is not entirely the same as Taiwan’s Securities and Exchange Act, with some areas more loosely regulated and others more strictly regulated. Each has its strengths and weaknesses.

I personally believe that there’s no need to have a company become so complicated. If one place could handle all of my financial needs, then I would not select two or more markets on which to publicly list my company. Maintaining a publicly listed company carries many hidden costs.

Listing in Hong Kong, however, is good for the image. Aside from helping to raise funds, it also improves an enterprise’s name-recognition. Before we went public in Hong Kong, many people had not heard of HannStar Board, but now it’s easier for us to recruit international talent.

After raising funds in Hong Kong to expand production in China, the money earned can be put back into Hong Kong and Taiwan. If you continually take money from Taiwan to invest in China, it’s not necessarily a good thing. Ultimately, I believe the way we’ve done things means all three sides come out winners.

Translated from the Chinese by Luke Sabatier

Keywords:

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