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Identifier
Created
Classification
Origin
05TAIPEI1191
2005-03-21 04:21:00
UNCLASSIFIED
American Institute Taiwan, Taipei
Cable title:  

CROSS-STRAIT INVESTMENT SURGES 51.1

Tags:   EINV  ECON  EFIN  TW  CH 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
						UNCLAS SECTION 01 OF 02 TAIPEI 001191 

SIPDIS

DEPARTMENT PASS AIT/W AND USTR

DEPARTMENT FOR EAP/RSP/TC

USTR FOR SCOTT KI

USDOC FOR 4430/ITA/MAC/EAP

TREASURY FOR OASIA - WISNER

E.O. 12938: N/A
TAGS: EINV ECON EFIN TW CH
SUBJECT: CROSS-STRAIT INVESTMENT SURGES 51.1
PERCENT IN 2004

REF: 03 TAIPEI 3930

SUMMARY
-------



1. Taiwan's investment in the PRC rose by 51.1
percent in 2004 accounting for 67 percent of overall
outbound investment from the island according to
statistics from the Ministry of Economic Affairs
(MOEA). Both the number of investment projects and
their average value increased. However, PRC data
indicate that contracted investment -- dollars
actually spent -- fell by 7.7 percent compared to


2003. Taiwan investors have concentrated by industry
in specific regions in the PRC, especially in the
Yangtze and Pearl River Deltas. These industrial
clusters offer new opportunities for Taiwan firms,
but at the same time they offer opportunities for PRC-
owned firms to develop and become more competitive.
End summary.

China Takes 2/3 of Outward Investment


--------------------------





2. According to the Ministry of Economic Affairs
(MOEA), Taiwan's approved mainland investment in 2004
rose sharply by 51.1 percent to USD 6.94 billion.
This marked the highest percentage increase since
2000 and the third highest increase since MOEA began
tracking the data in 1991. Despite continuing
government efforts to encourage businesses to
diversify the places where they invest, more than 67
percent of outward investment during the period went
to Mainland China. Some officials and analysts
believe a more accurate figure would be 75 percent
because many Taiwan investments in the PRC pass
through third areas like British Virgin Islands and
British Cayman Islands to evade Taiwan government
controls or Taiwan taxes. Cumulative MOEA approved
investment in the PRC as of December 31, 2004 was up
20.2 percent to USD 41.3 billion from the 2003
yearend level of USD 34.3 billion.

Bigger Investments and More of Them


--------------------------





3. The remarkable 51.1 percent increase in approved
investment is due both to an increase in the number
of projects approved and the higher average value of
approved investments. Both broke new records with
2,004 projects approved and an average size of USD
3.46 million. Some of the firms approved for
particularly large projects include Taiwan
Semiconductor Manufacturing Company (TSMC) (USD 371
million), Hon Hai Precision (USD 68 million), AU
Optoelectronics (USD 100 million, two projects), Hsin
Ta Cement (USD 60 million) and Formosa Plastics (USD
69 million).

PRC Data - More Contracted, Less Realized Investment


--------------------------



--------------------------





4. PRC investment data showed that although the
contracted value of Taiwan's new mainland investment

in 2004 grew, the value of realized investment --
dollars actually spent -- dropped for the year.
According to PRC data, contracted investment rose
more modestly than the MOEA approved data figures,
with growth of 8.7 percent to USD 9.31 billion. For
realized value, PRC figures show a drop of 7.7
percent from 2003 to USD 3.12 billion. The
cumulative totals by contract value and realized
value as of December 31, 2004, were USD 79.33 billion
and USD 39.62 billion, respectively. The drop in
realized investment could be explained by a number of
different factors that may have encouraged Taiwan
businesses to postpone planned investments. These
include the PRC's tightened macroeconomic controls,
uncertainly about the future of the Renminbi exchange
rate, and persistent power shortages in the PRC.

Industry Clustering


--------------------------





5. According to MOEA statistics, nearly 79 percent of
Taiwan's mainland investment was made in the Pearl and
Yangtze River Delta (including Shanghai metropolitan
area). Over 56 percent of mainland investment was in
electronics and electrical equipment (mainly IT
hardware manufacturing), basic metals, plastic products
and chemicals manufacturing. These figures only
partially reflect the degree to which Taiwan's
investment has clustered by industry in specific areas
of the PRC. A recent survey by Chung-hua Institute for
Economic Research (CIER), a leading economic research
institute in Taiwan, underscored how Taiwan's
investment in plastic-product manufacturing has
concentrated in Guangdong to take advantage of a well-
established supply chain. Electronics and electrical
equipment manufacturers have also concentrated in
Guangdong but are increasingly migrating to Jiangsu and
Zhejiang.



6. Clustering has facilitated the development of local
suppliers with the result that Taiwan investors
increasingly rely on inputs produced in the PRC instead
of importing those inputs from Taiwan. Appreciation of
the New Taiwan Dollar may further encourage this trend.
Taiwan's Minister of Economic Affairs Ho Mei-Yueh has
argued that the PRC has used industrial clustering to
encourage the development of PRC-owned IT firms and
warns of increasing competition for Taiwan firms. As
some observers point out, industrial clusters in the
PRC offer Taiwan firms both the opportunity to take
advantage of a favorable investment environment and the
challenge of a rising new center for competition.



7. MOEA statistical data on approved cross-strait
investment can be downloaded at
http://2k3dmz2.moea.gov.tw/gnweb/english/e_ma in.aspx?
Page=D at the link to "D-6 Approved Indirect Mainland
Investment."

PAAL