Identifier
Created
Classification
Origin
05TAIPEI4029
2005-09-30 08:56:00
UNCLASSIFIED
American Institute Taiwan, Taipei
Cable title:  

Economic Briefing for September 2005

Tags:  EINV EFIN ECON PINR TW ESTH 
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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 03 TAIPEI 004029 

SIPDIS


STATE PLEASE PASS AIT/W AND USTR

STATE FOR EAP/RSP/TC, EAP/EP

USTR FOR WINTER AND WINELAND

USDOC FOR 4420/USFCS/OCEA/EAP/LDROKER
USDOC FOR 3132/USFCS/OIO/EAP/ADAVENPORT
TREASURY FOR OASIA/LMOGHTADER
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 ESTH
SUBJECT: Economic Briefing for September 2005

UNCLAS SECTION 01 OF 03 TAIPEI 004029

SIPDIS


STATE PLEASE PASS AIT/W AND USTR

STATE FOR EAP/RSP/TC, EAP/EP

USTR FOR WINTER AND WINELAND

USDOC FOR 4420/USFCS/OCEA/EAP/LDROKER
USDOC FOR 3132/USFCS/OIO/EAP/ADAVENPORT
TREASURY FOR OASIA/LMOGHTADER
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 ESTH
SUBJECT: Economic Briefing for September 2005


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

--Overview: Oil prices dampen growth
--Strikes stymie Taiwan's financial reform
--Avian flu alert
--Cross-Strait exchanges increase
--Taiwan attempts WTO consultations with China
--RMB appreciation affects Taiwan firms
--Economic relationship with Vietnam
--China Shipbuilding Corporation to privatize

Higher Petroleum Prices Dampen Growth
--------------


2. The recent sharp, sustained increase in oil prices from
less than US$50 per barrel early this year to above US$70 in
late August has dampened Taiwan's economy. Higher oil
prices in the first eight months of 2005 pushed up Taiwan's
oil import costs by 50%. This increase, together with the
continuing offshore relocation of Taiwan manufacturing and
flagging demand from the United States, Japan, and Europe,
cut Taiwan's trade surplus by 80%, and almost eliminated
Taiwan's balance of payments surplus in the first half of

2005. Inflation in August reached 3.56%, the highest level
in the past 44 months, prompting Taiwan's Central Bank of
China to raise its benchmark interest rate by 0.125
percentage points in mid-September. Higher oil prices,
coupled with higher interest rates for the US dollar (USD)
than for the NT dollar (NTD),caused the NTD to depreciate
six percent from early March to late September, and Taiwan's
stock market to fall seven percent during July-September.
Local economists estimate that higher oil prices could
reduce Taiwan's 2005 economic growth by 0.1-0.15 percentage
points to around 3.5%. Nevertheless, Taiwan's government
predicts higher export growth in the last quarter of this
year when depleted inventories in developed nations will
stimulate demand for Taiwan-made products, particularly IC
and other electronic goods.


Effects of RMB Appreciation on Taiwan
--------------


3. On September 20, the Board of Foreign Trade sponsored a
seminar to discuss the effects of the RMB appreciation on
Taiwan. The RMB appreciation may blunt the competitive edge
of Taiwan companies based in China. Taiwan's Chinese
National Federation of Industries (CNFI) believes that the
RMB appreciation may force China to upgrade to compete more
on quality rather than just price. CNFI will encourage
Taiwan enterprises to merge or ally with multinational
corporations and to explore opportunities outside of China.
Major foreign investment banks including Deutsche Bank,
Credit Suisse First Boston, ABN AMRO and JP Morgan expect
that the RMB will appreciate further over the next two
years.

Labor Stymies Financial Reform
--------------


4. On September 9, three financial holding companies bid
for state-owned shares of Business Bank of Taiwan (BBT),a
key step in Taiwan's second-stage financial reform.
However, about 36% of BBT employees staged a strike the day
prior to the bidding. The strike lasted four days, drove
BBT share price down by 15%, and forced the government to
stop the sale. Opposition party legislators joined BBT
employees to demand the government stop selling off BBT
equity. The protests led to the resignation of BBT Chairman
Chung Su-sheng, and the new Chairman, Chang Chao-shuen,
promised not to sell any more of the state-owned equity in
BBT. At present, the government controls 43.65% of
ownership in BBT, which is one of Taiwan's top ten banks in
assets.

Taiwan Steps up Alert against Avian Flu
--------------


5. On September 22, Taiwan's Council of Agriculture (COA)
issued an avian flu alert in anticipation of migratory birds
arriving from Siberia, where H5N1 has spread from Southeast
Asia. The COA will conduct an inter-ministerial anti-flu
exercise in mid-October. Taiwan's Department of Health
(DOH) has come up with a five-year avian anti-flu program
that will require NT$30 billion in funding. The DOH will
stock 23 million masks and 5 million sets of protection
gear. It will seek to procure sufficient Tamiflu to treat
ten percent of the population. The DOH will begin a
separate seven-year flu vaccine self-sufficiency program
that will earmark NT$500 million for development of
technology and another NT$1.5 billion to subsidize vaccine
production. The government will budget NT$4 billion for
procurement of flu vaccine each year.

Cross-Strait Two-way Travel Increases
--------------


6. Cross-strait travel in the first half of 2005 continued
to grow with 71,683 entries into Taiwan from China, up 3.3%
from a year earlier. This included 9,766 persons coming for
marriage (up 200%),3,735 persons for permanent residence
(up 383%),and 27,576 persons for short visits (down 34%).
As of June 2005, Taiwan has officially approved 158,000
mainland Chinese for permanent residence in Taiwan. From
1987 to June 2005, over 1.2 Mainland Chinese have visited
Taiwan, for social, cultural, and economic activities, as
well as tourism. According to China's statistics, the
number of people from Taiwan visiting China in the first six
months of this year grew 18.7% from a year ago to 2.01
million entries, sending the cumulative number of Taiwan
visits to 36 million. There are nearly one million Taiwan
people living in China.

Taiwan Attempts to Consult with China under WTO
-------------- --


7. Taiwan's International Trade Commission (ITC) will
submit an import relief and industrial defense case to the
WTO and request consultations with China. On September 19,
the ITC accepted a petition from the Yunlin County Towel
Association complaining that a sharp increase in towel
imports from China had injured its member companies. Cotton
towel imports from China in 2004 totaled 6,800 metric tons,
84% more than the 3,700 metric tons in 2002.

Taiwan Signs Agreement on Vietnam's WTO Accession
-------------- --------------


8. During her trip to Vietnam to attend bilateral trade and
economic consultations in early September, Taiwan's Economic
Minister Ho Mei-yueh signed a bilateral agreement on
Vietnam's WTO accession. The agreement will lower import
tariffs on Taiwan products, and reduce tariff rates for some
200 products whose Vietnam import duties average 45.25%.
Minister Ho also signed a Taiwan-Vietnam Trade Agreement and
a Memorandum on Standardization, Weights and Measurement
Assessment. In addition, Taiwan and Vietnam agreed to
support each other to join the ATA Carnet Agreement system
(designed to facilitate trade promotion by quick custom
clearance and tariff exemption for exhibition products).
Taiwan is the largest source of Vietnam's foreign
investment, and over 80% of Taiwan's projects are in labor-
intensive industries such as textiles, garments, footwear,
and furniture. Taiwan's cumulative investment in Vietnam as
of August 2005 totaled US$7.6 billion. Taiwan had been
Vietnam's third largest trading partner (after Japan and the
United States) until 2003 when China overtook Taiwan.

Privatization of China Shipbuilding Corporation (CSC)
-------------- --------------


9. The Ministry of Transportation and Communications (MOTC)
plans to privatize the 99% government-owned CSC prior to the
end of December 2005. The deadline to submit bids is
October 17. There will be a one-week bidder qualification
review following the deadline. Each bidder is required to
pay a NT$30 million guaranty deposit, and have minimum
capital of NT$500 million. The bid winner may neither close
any CSC shipbuilding yards nor transfer management and
ownership to others within five years. Funding to acquire
CSC may not come from China. Two large local shipping
companies (i.e., Wanhai Marine Transport Company and Yang
Ming Marine Transport Corporation) and China Steel
Corporation will reportedly form an alliance to bid. [Note:
The Taiwan government owns a significant, but less than 50%
share in both China Steel and Yang Ming.]

KEEGAN