CROSS-STRAIT ECONOMIC ROUNDUP - FOURTH QUARTER

UNCLAS SECTION 01 OF 03 TAIPEI 000268

SIPDIS

DEPT PASS TO AIT/W

DEPT FOR EAP/ TC


E.O. 12958: N/A
TAGS: ECON PREL ETRD EINV EWWT CH TW
SUBJECT: CROSS-STRAIT ECONOMIC ROUNDUP - FOURTH QUARTER
2004

REF: A) 04 TAIPEI 84, B) 04 TAIPEI 2592, C) 04 TAIPEI

3323


Summary
--------------


1. Taiwan chipmakers PowerChip and ProMos submitted
applications to Taiwan's Ministry of Economic Affairs (MOEA)
Investment Commission for permission to build semiconductor
manufacturing facilities in the PRC. If approved these two
plants together with Taiwan Semiconductor Manufacturing
Co.'s (TSMC) plant near Shanghai will fill the quota imposed
by MOEA for this type of investment. Taiwan Formosa Plastic
Group also submitted a naptha cracker investment application
to PRC authorities even though this category of investment
has not yet been legalized by Taiwan. The Taiwan government
further liberalized the operations of Taiwan financial firms
in the Mainland and import restrictions on PRC goods. Four
Taiwan firms announced additional investment in cooperation
with the Xiamen City Government to develop Xiamen's aviation
facilities. (End Summary.)

Investment
--------------


2. Both PowerChip and ProMos submitted applications the
last week of December to Taiwan's MOEA Investment Commission
for permission to build eight-inch wafer semiconductor
manufacturing facilities in the PRC. The Investment
Commission had previously announced that it would approve
only three applications for semiconductor manufacturing in
the Mainland. With TSMC's plant, which was initially
approved in 2003, approval of the new applications will fill
the quota. Powerchip did not reveal the amount of its
proposed investment, but ProMos indicated it planned to
invest approximately USD 800 million. The Investment
Commission will review the application to ensure the two
firms meet all the requirements, particularly the required
investment in twelve-inch wafer manufacturing in Taiwan.
Local media speculated that ProMos's application might face
difficulty due to its financial situation and a lawsuit
involving its parent company, Mosel Vitelic Inc.


3. On October 30, Taiwan Formosa Plastic Group (TFP)
submitted its naphtha cracker investment proposal to PRC
authorities for approval. TFP plans to build a plant in
Ningpo with the capacity to produce 1.2 million tons of PVC
per year. Because Taiwan has not yet legalized this type of
investment in the PRC, TFP said it would not proceed with
the investment until Taiwan authorities had also approved
it.

Finance
--------------


4. During the fourth quarter of 2004, the Taiwan government
took two steps further liberalizing the activities of Taiwan
financial firms in Mainland China. The Mainland Affairs
Council (MAC) announced on November 29 that securities and
futures companies would be permitted to set up branch
offices in the PRC and one month later announced that Taiwan
financial holding companies could set up representative
offices in the PRC. The PRC also made progress toward cross-
Strait financial liberalization. On December 30, the PRC
approved a request from Cathay Financial Holding Co.,
Taiwan's biggest financial services provider, to offer
insurance services in China. Cathay Financial will provide
these services through a joint venture with China Eastern
Air Holding Co.


Trade
--------------


5. During the quarter, Taiwan's Board of Foreign Trade
(BOFT) lifted imports bans for 18 PRC products, including
certain types of soaps, building stones, metal alloys, and
motors.


6. Although Taiwan has not lifted import bans for PRC
mobile phones, PRC's leading mobile phone name brand, Bird
International Company, reached an agreement with a Taiwan
company to import its products via Malaysia with Malaysian
product of origin certificates. Bird is the first mainland
mobile phone manufacturing firm to sell its products in
Taiwan under its mainland name brand. At least four other
PRC mobile phone manufacturers sell their products in Taiwan
under a different brand name.


7. On November 15, the PRC announced that it would impose
20-74 percent antidumping taxes on ethylene glycols (EG)
imports from Taiwan, Japan, the U.S., Mexico, Germany, and
two other countries. Ethylene glycols are used in anti-
freeze and de-icing solutions. According to Taiwan's BOFT,
the PRC is Taiwan's largest ethylene glycols export market,
accounting for 79 percent of Taiwan's global EG exports.

Transportation
--------------


8. On October 7, Taiwan's China Airlines (CAL),EVA
Airways, Far East Air Transport Corp., Taiwan Airport
Service Co., Ltd and Xiamen City government announced they
would together build a bonded warehouse at Xiamen's airport.
Investment by the four Taiwan companies totals USD 6.8
million, giving them a 49 percent stake with Xiamen City
Government holding the rest. These five entities had
previously cooperated to finance the Xiamen Air Cargo
Terminal, which was inaugurated in September.


9. The PRC's China Eastern Airlines and CAL initiated a
joint service from Shanghai to Taipei via Laoag, the
Philippines, in November. China Eastern Airlines provides
Shanghai-Laoag service and CAL connects Laoag and Taipei.
The overall flying time is 4 hours and the cost is NTD
8,000, about half the cost of transit via Hong Kong or
Macao.

Travel Policy
--------------


10. Two events marked further relaxation of restrictions on
Mainland Chinese travel to Taiwan. After the PRC's Fujian
province announced in September that Fujian residents would
be permitting to travel to Taiwan's Kinmen for tourism, the
first group of 55 Fujian tourists arrived December 7 via the
mini-links. On November 1, while announcing the
appointment, Chen Chung-hung as the Director of the Taipei
Economic and Cultural Center in Macao, MAC Chairman Joseph
Wu also announced that MAC will soon launch online visa
applications for residents of Hong Kong and Macau who wish
to visit Taiwan.

Exchanges
--------------


11. On October 17, Taiwan's former Vice Finance Minister
Day Li-nin for the first time attended an International
Advisor Committee meeting for the Beijing-based China
Securities Regulatory Commission as an advisor. The meeting
discussed the development and risk management of the PRC's
securities market. Taiwan's MAC is studying whether Day's
position as an advisor to this institution is prohibited
under Taiwan law or would require prior approval from the
Taiwan government. While the China Securities Regulatory
Commission is directly under the PRC's State Council, it
remains unclear whether the affiliated International
Advisory Committee meets the definition of an "official"
organization.


12. After waiting more than five months, Pao Cheng-Kang,
Taiwan's new representative to Hong Kong, was granted a visa
in mid-October and assumed his post as Managing Director of
the Chung Hwa Travel Service in Hong Kong.


13. Frequent cross-Strait exchanges between businesses and
academic institutions continued during the quarter.
Highlights, involving government officials, include the
following:

-- Taiwan's Financial Supervisory Commission (FSC) Deputy
Director Susan Chang led a delegation of senior financial
officials from the Council for Economic Planning and
Development, the Central Bank of China (CBC) and MAC to
Dalian for the tenth Cross-Strait Financial Academic
Conference October 24-28.

-- Taiwan's Lienchiang County Commissioner Chen Hsueh-sheng
led a delegation to Fuzhou October 26 and learned from
Fujian Deputy Governor Wang Mexiang details of Fujian's plan
to liberalize travel for Fujian residents to Kinmen and
Matsu.

-- Li Xiaoyun, Director of the Center of Cross-Strait
Economic & Science Cooperation (CSESC) of the PRC State
Council's Taiwan Affairs Office, and Feng Zhuozhi, President
of China Sunrise Travel Service (CSTSTOUR) visited Taiwan to
attend the Taipei International Tourism Exhibition on
November 10.

-- Jiangsu Intellectual Property Office (IPO) Director
General Zhu Yu attended the 2004 Taiwan-Jiangsu IPR
conference held in Taiwan on December 8. Taiwan's IPO
Deputy Jack Lu also attended the conference.
PAAL