Taipei, Taiwan — Establishment of a large-scale automobile assembly plant - with a product good enough to be exported worldwide - is being promoted by the Taipei government as a ''locomotive'' for pulling the nation into heavy industry.
But some have raised doubts about the project, which first surfaced two years ago. The multimillion-dollar question: can a nation of only 18 million people, with five existing auto producers, support such a costly and ambitious project?
The government has signed basic agreements with Japan's big-two automakers, Toyota and Nissan, on the joint venture to produce 200,000 small passenger cars annually. But with doubts continually being raised about the underlying strategy of the project, a final decision on the foreign partner is considered months away.
Officials of the Ministry of Economic Affairs say the basic motivation is to produce a better, cheaper'car for the local market. Although the domestic auto industry began 25 years ago, it is still far from international standards.
Secondly, the project intended to boost demand for a wide range of local products - and help the government develop a more diversified, sophisticated industrial structure.
The Japanese are supposed to take a 45 percent equity share, with 25 percent held by China Steel - called in by Taiwan's President Chiang Ching-kuo to ensure local management expertise. The rest is to be offered to as many local investors as are willing to participate.
But China Steel is far from happy with the project as currently structured, believing it cannot possibly achieve the government's goals of promoting the growth of other industries, according to company president T. K. Liu.
He is particularly scathing in criticism of a government requirement that half of the plant's output be exported from the very beginning. ''It's nonsense to post such a condition on a new plant,'' he says. ''Of course, it should be targeted for exports, but the quality has to be established first.''
If the government keeps to its requirement, then the majority of the parts for the export consignment would have to come from Japan, and only those cars destined for the domestic market could be fitted with local parts, he insists.
As a result, production costs would soar, defeating the main objective of producing a car the average person can afford. Although not yet abandoning its export target, the government appears to have acknowledged the problem by announcing in May a four-stage program for developing a viable, high-quality, auto-parts industry, capable not only of keeping out most foreign components, but also able to compete in world markets.
But some analysts insist this will work only if there is a healthy infusion of government cash, along with reform of the current tax and customs-duty structure, which imposes a heavy burden on imported cars, but a much lighter one on parts and components.
Mr. Liu agrees that the local parts manufacturers have to be given every possible break. ''Although there is heavy Japanese participation in this joint venture, we are not here to promote the Japanese parts industry at our own expense,'' he says.
The aims of China Steel's chairman are much more modest. He wants to export as little as 1 percent of the proposed plant's output - ''but not just to areas like Southeast Asia, which might be easy. We have got to get buyers in the United States and Europe to accept our cars.''
This stems from his experience with China Steel in the early years of the mid-1970s. ''When we started, local companies didn't trust our products - and insisted on buying from Japan. So we had a lot of trouble to sell locally.
''So what we did was to start exporting to Japan and the United States. Our products were accepted, and we had photographs published in the local press here showing the steel being unloaded at Japanese and American ports. When local companies saw that, their whole attitude changed. We have to use the same psychological trick with cars.''
Not surprisingly, existing vehicle producers - who together turn out only 130 ,000 units a year - bitterly oppose the project. They are particularly insistent the government keep to its 50 percent export target, fearing that otherwise the new venture will cut heavily into their share of the local market.
Actually, officials of the Ministry of Economic Affairs hint, if the existing companies would amalgamate into a more productive single venture there would be no need for the collaboration with Japan.
But there is no incentive for such cooperation. Each automaker has a tiny profitable niche, with a 20 percent return on small volume sales (versus 3 percent for Toyota and Nissan, for example).
The main reason is the high cost of passenger cars in Taiwan. A sub-compact sells for about $7,000, more than 50 percent higher than in Japan, which means there are few individual buyers at present.
China Steel's aim is that the jointly produced car should sell initially for about $5,600 locally, and the figure should be gradually brought down (to somewhere between $2,500 and $3,000 if possible) to make the vehicle competitive in world markets.
One problem holding up a final decision, however, is what car to produce. T. Wu, vice-minister for economic affairs, points out that the world auto trade is going through an extremely volatile stage.
''The new plant won't go into operation for about four years, even if we make a decision now. So we are talking about what sort of car will be in demand then, not what is selling well now. And we have no experience of regular model changes like the US, Europe, or Japan to guide us. This is a serious delaying factor. We don't want to end up with a Chinese Edsel.''