"Girls, guests are coming. Go give them an introduction." On a March day Taiwan's biggest-ever machine tools exhibition occupies all the halls of the Taipei World Trade Center, both downtown and at the new Nangang Hall. Even though the trade show includes more than 5,000 booths, total corporate demand had been for 7,500 booths – over 2,000 more than organizers could squeeze in. In a corner of Exhibition Hall No. 2, Zhou Yan Bo, sales manager for Wafangdian Kaiwei Fine Bearing Manufacturing Co., sees reporters approaching, and gestures to his female staffers.

Clad in a lightweight gray zippered jacket, with sharp-toed black loafers on his feet, he is sitting in the company booth with Derek Wong of international sales. The two are taking advantage of the early morning lull in exhibition visitors to discuss the reactions of Taiwanese clients during the exhibition.

Browsing for Supply Chain Data

Wafangdian City, in Liaoning Province, is known as the bearing capital of China, and manufacturing companies both large and small habitually include the city's name in their corporate monikers. The city is an important link in the supply chain for China's machine tool industry development.

Kaiwei sells most of its bearing components to companies manufacturing complete casting and turning machines used in the technology industry and in automotive assembly lines. The state-run enterprise Wuhan Wuzhong Casting & Forging Co. often makes use of Kaiwei components.

In its first visit to the Taiwan exhibition, Kaiwei hopes to become a supplier to Taiwanese manufacturers of whole machine tools, such as Victor Taichung Machinery Works Co., Ltd. They also hope to collect information on Taiwan's supply chain manufacturers.

Taiwan is the world's number four machine tool exporter, behind Japan, Germany and Italy, with yearly exports totaling US$3 billion. Nearly 50 percent of those exports go to Hong Kong and China, Taiwan being a major supplier of equipment for China's manufacturing sector.

The machinery industry has a shot this year at becoming Taiwan's third trillion-Taiwan-dollar industry (after semiconductors and video display units). There are more than 10,000 companies involved in the upstream and downstream supply chain in the Taichung area alone, making it the world's most densely concentrated machine tool industry cluster.

China's machinery industry has now become quite interested in integrating this piece of the supply chain and, to that end, Zhejiang Yonglida CNC Machine Tools Co., Ltd. has applied to establish a presence in Taiwan in the wake of the signing of the Economic Framework Cooperation Agreement (ECFA).

This is not the first trip to Taiwan for Chen Sheng, president of Yonglida, a maker of computer-controlled metal processing machinery. During his first visit in 2009 for the Taipei Machine Tools Exhibition, he toured industry counterparts in central and southern Taiwan. As Chen sees it, Taiwanese industry, with its high technology, good quality and high added value, is the best source to tap when Chinese companies want to upgrade their capabilities. That same year Chen was able to poach a machine design engineer from Taiwan.

During an interview with Chinese media, Chen clearly expressed his intent to "take advantage of Taiwan's strengths" and close the 20-year gap between the Chinese and Taiwanese industries within three years by capitalizing on Taiwanese design, and R&D capabilities. Initially, efforts will focus on procurement and the quest for talented personnel.

Taiwanese Talent Working from Own Doorsteps

Although Yonglida has managed to bring on several Taiwanese engineers, most are unwilling to work in China. Once Taiwan opened the doors to Chinese investment capital last year, Yonglida moved to invest on this side of the strait, choosing Taichung as the site for its joint venture with a Taiwanese firm in the same industry.

The joint venture avoided frontline battle zones like Taichung Industrial Park and the Precision Machinery R&D Park, instead surreptitiously moving into a location on the east side of the Meichuan area along Meichuan East Rd. in Beitun District, thus symbolizing the company's eastward expansion.

Once its Taiwan joint venture had been established, Yonglida could "allow Taiwanese to work for us from their own doorsteps," Chen says.

Only three people can be observed at the tiny 20-ping (66 square-meter) office of the Chinese-invested company, located next to a residential block alongside a hair salon.

The Taiwanese office manager, surnamed Lin, showed obvious and considerable surprise when confronted by reporters, repeatedly asking us how we came to discover the involvement of Chinese capital and offering such tepid responses as "everything is still settling in" and "no comment" to our questions about the future role the Taiwanese company is to play.

But he was, after all, an amiable central Taiwanese and, after some persistence on our part, eventually allowed us entry for an interview.

Lin, nigh on a 30-year veteran of the industry, was introduced to Chen Sheng through clients, and just what form their mutual cooperation will take is still very much up in the air.

China's Big Players to Arrive Next Year

His own company located within the Taichung Industrial Park in Situn District, Taiwan Association of Machinery Industry chairman Hsu Hsiu Tsang was equally cagey in his responses to reporters' questions on the issue of Chinese capital entering Taiwan:

"(They're) already here? The truly major players have yet to arrive!"

The "major players" of whom Hsu speaks are Chinese state-owned companies mostly specializing in the manufacture of complete machines, such as Wuhan Wuzhong Group.

The shared language on the two sides of the Taiwan Strait makes after-sales service easier, Hsu says. When German companies sell equipment to China, it might be six months after the sale before company technicians show up for after-sales service, he says. With Taiwanese companies able provide on-site services inside of a week and costs just 60 to 70 percent of comparable Japanese or German products, Taiwanese companies are gradually becoming the driving force in the Chinese market.

Hsu went on to elaborate on where the best features of the Taiwanese value chain lie. The machinery industry chain that has gradually taken form over the last 30 years in Taiwan in congenial central Taiwan has come to resemble the mentor-protégé system in the Japanese industry. Employee loyalty is high and communication easy amidst long-term cooperation among satellite plants and makers of finished machines.

Hsu believes China's machinery industry investments in Taiwan are motivated by a desire to poach Taiwan's precision machinery workforce, learn from Taiwan's high-efficiency mode of production, and integrate and utilize Taiwan's supply chain to change the face of the industrial culture in China and establish a supply chain of their own. The entry of Chinese capital into Taiwan this year is merely laying the groundwork. The real crucial time will come when the state-owned enterprises begin to arrive, which may very well be next year, Hsu says.

Translated from the Chinese by Brian Kennedy