Electronics companies in Taiwan Province -- those having the lion's share of computer manufacturing on the Chinese mainland -- are taking precautions in case the central government tightens credit further to cool the nation's overheating economy.

With China imposing curbs on loans to select industries yet to make their mark on the economy -- inflation is accelerating and factory output and imports are surging -- concerns are growing that the measures will be widened to include the computer sector.

At present, the electronics sector is not a target, but analysts worry the government may eventually restrict loans to makers of components, which supply the Chinese mainland factories owned by Taiwan companies.

"There should be an impact on tech companies that purchase components from the Chinese mainland companies, if these components makers are hurt by a credit tightening and can't supply to Taiwan buyers," said Johnson Hsu, economist at MasterLink Investment Advisory.

"Profit margins of PC makers are already low. If they turn to other components makers, then they probably will have to pay higher prices, putting further pressure on margins."

Taiwan businesses have poured around US$100 billion into China since the 1980s, and set up thousands of factories there to take advantage of cheaper costs.

Bankers say some technology companies that rely on Chinese mainland banks for short-term borrowing are setting up credit lines with the offshore units of Taiwan banks so, if necessary, they can secure loans to pay wages or buy raw materials.

"It's about preparation. Some companies, including those in the export-oriented manufacturing industry, have already taken this into consideration," said Alex Lin, manager of Taiwan's Shanghai Commercial and Saving Bank.

Reaping new biz

Tech companies tend to issue convertible bonds or shares overseas to raise money for long-term investment, but they often borrow short-term revolving funds from Chinese banks for daily operations in the Chinese mainland, Taiwan's largest export market.

Compeq Manufacturing Co, Taiwan's top printed circuit board maker and an investor on the Chinese mainland, said it could seek help from Taiwan offshore banking units (OBUs) if credit from Chinese banks was withdrawn.

It is an option likely to be explored by many of the companies that gathered in Taiwan last week for the opening of Computex, the world's second-largest computer trade show.

Taiwan's Commercial Times estimated lending by OBUs, which stood at US$16.84 billion at the end of March, would rise more than 30 per cent this year, boosted by loans to Taiwan companies on the mainland in the next three to six months.

"It's an alternative, and a good way to keep operations on track, although tech firms have not yet faced the credit problem," said Enoch Du, secretary-general of the Taipei Computer Association.

Many companies use the mainland as a manufacturing base for products that end up in the United States and Europe, but some are reliant on Chinese demand, such as top Taiwan PC brand Acer Inc and computer equipment and mobile maker BenQ Corp.

Acer, the world's fifth-largest PC vendor, generates around 20 per cent of sales from the Chinese mainland.

"The Chinese Government believes the growing use of computers will help education and boost efficiency in manufacturing, so there is no need to cool the PC sector," said Scott Lin, president of Acer's Greater China operations.

The central government has ordered its banks to curb lending to over-invested sectors, such as steel, cement, property, building materials and petrochemicals.