Identifier
Created
Classification
Origin
05TAIPEI1582
2005-04-01 08:37:00
UNCLASSIFIED
American Institute Taiwan, Taipei
Cable title:  

Economic Briefing for March 2005

Tags:  EINV EFIN ECON PINR TW 
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010837Z Apr 05
UNCLAS SECTION 01 OF 03 TAIPEI 001582 

SIPDIS

STATE PLEASE PASS AIT/W AND USTR

STATE FOR EAP/RSP/TC, EAP/EP AND EB/IFD/OIA

USTR FOR SCOTT KI

USDOC FOR 4420/USFCS/OCEA/EAP/LDROKER
USDOC FOR 3132/USFCS/OIO/EAP/ADAVENPORT
TREASURY FOR OASIA/ZELIKOW AND WISNER
TREASURY PLEASE PASS TO OCC/AMCMAHON
TREASURY ALSO PASS TO FEDERAL RESERVE/BOARD OF
GOVERNORS, AND SAN FRANCISCO FRB/TERESA CURRAN

E.O. 12958: N/A
TAGS: EINV EFIN ECON PINR TW
SUBJECT: Economic Briefing for March 2005


Introduction and Summary
------------------------

UNCLAS SECTION 01 OF 03 TAIPEI 001582

SIPDIS

STATE PLEASE PASS AIT/W AND USTR

STATE FOR EAP/RSP/TC, EAP/EP AND EB/IFD/OIA

USTR FOR SCOTT KI

USDOC FOR 4420/USFCS/OCEA/EAP/LDROKER
USDOC FOR 3132/USFCS/OIO/EAP/ADAVENPORT
TREASURY FOR OASIA/ZELIKOW AND WISNER
TREASURY PLEASE PASS TO OCC/AMCMAHON
TREASURY ALSO PASS TO FEDERAL RESERVE/BOARD OF
GOVERNORS, AND SAN FRANCISCO FRB/TERESA CURRAN

E.O. 12958: N/A
TAGS: EINV EFIN ECON PINR TW
SUBJECT: Economic Briefing for March 2005


Introduction and Summary
--------------


1. This cable summarizes selected recent economic events in
Taiwan in March 2005:

--Taiwan's economic performance in Q1 of 2005

--Privatization of two large state-owned enterprises

--Legal-regulatory workshop for export control

--High-Speed Rail Continues Efforts to Raise Capital

--Taiwan reaction to China's Anti-session Law

END INTRODUCTION AND SUMMARY.

Economic Slowdown Continues Through Q1
--------------


2. A leading indicator compiled by Taiwan's Council for
Economic Planning and Development (CEPD) for February 2005
showed a decline of 1.3% (compared to the previous month),
signaling continuation of the economic slowdown from 2004 to
Q1 of 2005. Export growth declined steadily from well over
20% in the first half of 2004 to 8% in the first two months
of 2005. Industrial production declined in January-February
2005 and the unemployment rate posted its first increase in
seven months. The manufacturing facility utilization rate
in February 2005 fell to 77%, the lowest in the past two
years. Profits dropped to 4.6% of sales, the lowest in the
past one and a half years. Higher import prices of crude
oil and other materials brought inflationary pressure,
prompting Taiwan's Central Bank of China to raise interest
rates in late March 2005.


3. In spite of the economic slowdown, Taiwan businesses are
optimistic. According to a survey conducted by the Taiwan
Institute of Economic Research (TIER) in March 2005, 55% of
respondents expected better business performance in the next
six months, compared to 8.5% anticipating worse performance.
Major local economic think tanks expect that public
construction projects and incentives for emerging industries
could help Taiwan's economy in the second half of 2005.
Foreign bankers, however, forecast that Taiwan's investment

expansion and economic growth in 2005 will slow
significantly because of higher interest rates will dampen
consumption in the United States, an important export
market.

Privatization - Chunghwa Telecom Company
--------------


4. In early March 2005, Premier Frank Hsieh instructed the
Ministry of Transportation and Communications (MOTC) to sell
17% of government equity in the Chunghwa Telecom Company
(CTC) by mid-2005. CTC is the largest telecom firm on the
island, with 84% of Taiwan's telecom market. The CTC sale,
the island's largest secondary share offering ever, would
reduce government ownership from 64.89% to 47.89%, making
CTC a private firm according to Taiwan's definition of
"state-ownership." CTC labor unions have opposed
privatization and may try to block the planned sale.
Privatization - Changhwa Commercial Bank
--------------

5. On March 18, two foreign consortia bid on Changhwa
Commercial Bank (CCB),slated to become the first Taiwan
state-owned bank sold to foreign investors. The CCB will
award 1.4 billion Global Depository Receipt (GDR) shares,
equivalent to 22% equity, to the high bidder. The GDR bid
winner will then be permitted to purchase another 18%
ownership stake in CCB directly from the government. This
will enable the winning bidder to have effective control
with a 40% equity stake. The sale of CCB will meet the
Taiwan's financial reform goal of selling at least one state-
owned bank to foreign investors before the end of 2005.
However, in a sign of possible problems in the CCB sale,
Treasury Department Director General Liu Deng-cheng
announced on March 22 that the government would not approve
the sale if bids were far below the market price. Several
days later, CCB Vice President Hsieh Chao-nan denied the
press reports and noted that the government and bidders were
still negotiating on the CCB sale.

Praise for Workshop on Export Controls
--------------


6. Several Taiwan officials have praised the recent four-day
Legal-Regulatory Workshop sponsored by the State Department
NP/ECC/EXBS program in Taipei March 22-25. They noted that
the training "made real" concepts they had heard, but did
not fully understand. They also noted that the Workshop
brought together Taiwan government officials from
essentially all Taiwan ministries and agencies involved in
export controls and gave them a chance to share
perspectives. The workshop featured active participation by
the attendees, particularly those from the Board of Foreign
Trade (BOFT),National Security Council, Customs Service,
and Science Park Administration. In the wrap-up session,
BOFT announced a near-term, mid-term, and long-term work
agenda that included remedying several specific defects in
Taiwan's current export control laws and implementation
procedures identified during the seminar.

High-Speed Rail Announces 11th Revision of Financial Plan
-------------- --------------


7. After failing to meet the fund raising requirements of
its financial plan for the tenth time, the Taiwan High-Speed
Rail Corporation (THSRC) revised its plan for raising
capital again at a stockholders meeting on March 4. The
plan calls for THSRC to raise NT$ 13.5 billion (about USD
420 million) by the end of May by issuing preferred stock.
The plan calls for THSRC to raise the first NT$ 6 billion
(about USD 190 million) by the end of March. THSRC and the
Ministry of Transportation and Communications have also
called on the Legislative Yuan to permit additional
investment by state-owned enterprises (SOEs) in THSRC. SOE
investment now stands at about 16 percent of THSRC's total
capital. On March 9, MOTC reaffirmed that the high-speed
rail will open on time on October 31, 2005.

Hsieh Reiterates "Active Opening, Effective Management"
Policy
-------------- --------------
--

8. Two days after hundreds of thousands took to the streets
of Taipei to express opposition to China's Anti-secession
law, Premier Frank Hsieh assured Taiwan's Legislative Yuan
that the current Taiwan policy of "actively opening
(investment in China) with effective management" remains
unchanged. He assured that the government would not go back
to the "patience without haste" era. He noted that the
government will relax laws (for cross-Strait economic
exchanges) but will enforce them strictly. With the
government's policies unchanged, a mission organized by
Taiwan's Chinese National Federation of Industries (CNFI) to
visit China and CNFI Chairman Earl Ho's planned meeting with
Taiwan business people in China will proceed in June 2005 as
scheduled. Local observers believed that higher interest
rates in the United States had more to do with the recent
NTD depreciation and stock price decline than the recent
cross-Strait events.
PAAL