CROSS-STRAIT ECONOMIC ROUNDUP - THIRD QUARTER 2005

UNCLAS SECTION 01 OF 03 TAIPEI 004207 SIPDIS DEPT FOR EAP/TC DEPT PASS AIT/W COMMERCE FOR ITA/MAC/ASIA/MBMORGAN CABLE BOX 4431 E.O. 12958: N/A TAGS: ECON EINV ETRD EAIR EFIN ETTC PREL CH TW SUBJECT: CROSS-STRAIT ECONOMIC ROUNDUP - THIRD QUARTER 2005 REF: A. TAIPEI 2950 ¶B. TAIPEI 3408 ¶C. TAIPEI 3454 ¶D. TAIPEI 3717 ¶E. SHANGHAI 3290 ¶F. GUANGZHOU 27348 Summary -------------- ¶1. The third quarter of 2005 saw several noteworthy developments in cross-Strait relations on the following topics: --Travel Agent Association of Taiwan to coordinate discussions on tourism. --Ministry of Economic Affairs recommended liberalization of export controls on semiconductor manufacturing equipment. --PRC approved another Taiwan life insurance company to establish Mainland office. --Taiwan industry group continued cooperation with PRC on IT industry standards. --Taiwan raised fines for illegal investment in PRC. End summary. Travel and Transportation -------------- ¶2. The third quarter of this year saw several important steps in cross-Strait transportation and travel policy, including PRC and Taiwan approval for Taiwan airlines to pass through PRC airspace on flights to Europe and the Middle East and steps toward expanding the "mini-links" to include the Penghu Islands (refs C and D). In addition, Mainland Affairs Council (MAC) Chairman Joseph Wu announced on July 28 that the Travel Agent Association of Taiwan (TAAT) would be designated as the industry association to coordinate cross-Strait consultations on opening tourism to Mainland Chinese. TAAT is an island-wide association made up of the Taipei Association of Travel Agents (TATA),the Provincial-level Taiwan Travel Agents Association, and the Kaohsiung Association of Travel Agents. On September 2, Wu invited these and other tourism industry associations to a meeting to discuss how to ensure quality services and social order with tourism liberalization. Wu also reminded the associations that they should take care not to be used as propaganda tools while in the PRC for trade fairs or other business consultations, including the September 6 First Cross-Strait Xiamen Travel Exhibition (ref F). During the exhibition, TAAT representatives met with officials from the China National Tourism Administration (CNTA) and, according to Taiwan press, discussed nomenclature issues in preparation for more formal consultations on cross- Strait tourism. ¶3. Taiwan also made an abortive effort to expand flight service to Hong Kong. Taiwan and Hong Kong authorities approved an application from Hong Kong Express Airways Ltd. (HKEA) to conduct five round trip charter flights between Hong Kong and Taichung September 3-7. However, Hong Kong authorities decided not to approve additional flights. According to Taiwan press report, Hong Kong authorities felt the flights had become a political issue in Taichung's December mayoral election. Trade -------------- ¶4. On August 24, BOFT lifted import bans for 25 PRC products, including cellular phones. In addition, BOFT has extended the temporary approval for imports of small-size (less than 14mm) hot press steel and non-alloy steel rods or bars to December 31, 2005. However, on September 9, BOFT announced that it would not extend the temporary approval for seven categories of mid-size (larger than 50mm) iron and steel plate imports from the current deadline of September 30. ¶5. To comply with the latest changes to international export control standards under the Wassenaar Arrangement, Taiwan's Bureau of Foreign Trade (BOFT) revised Taiwan's export controls on September 14. Among the changes, Taiwan will now permit the export of semiconductor equipment capable of producing chips with feature size as fine as 0.18 microns to some areas not including the PRC. However, MOEA recommended to the Executive Yuan (EY) that Taiwan relax such exports to the PRC as well. This step would allow Taiwan semiconductor foundries to transfer their 0.18-micron equipment to the PRC, once investment regulations allow them to build that kind of factories there with that level of technology. Finance -------------- ¶6. On July 28, Taiwan's Financial Supervisory Commission announced new regulations that would permit PRC professionals staying in Taiwan over six months for work-related purposes to apply for credit cards from Taiwan banks. Although the new regulations will not affect many PRC visitors, they represent a small effort by the Taiwan government to make it easier for PRC employees of multinationals and Taiwan firms to come to Taiwan for medium- and long-term assignments. ¶7. The PRC approved on August 2 a request from Taiwan's China Life Insurance Co. Ltd. to set up a representative office in Beijing. China Life joined three other Taiwan insurance companies -- Cathay Life Insurance Co., Ltd, Shin Kong Life Insurance Co., Ltd. and Taiwan Life Insurance Co., Ltd. -- that have established representative offices in the PRC and are qualified to seek approval for insurance joint ventures with a mainland partner. Industrial Standards -------------- ¶8. After initiating discussion of IT industry standards with PRC authorities on July 5 (ref B),a delegation from the Taipei-based Sinocon Industrial Standards Foundation and Taipei Computer Association met September 28 with officials from the PRC's Ministry of Communications to discuss the establishment of an "MU" card (Multimedia card and USB insert card) promotion alliance. According to Taiwan media reports, possible members of the alliance include China's Lenovo, Haier, and TLC and Taiwan's Acer, Asus, PowerChip and the Industrial Technology Research Institute (ITRI). Taiwan industry representatives were in Beijing for the Eighth Beijing-Taiwan Science and Technology Forum and discussed other standards issues related to 3G cellular phones, radio frequency identification, and other technologies. Investment -------------- ¶9. On August 11, Taiwan's Ministry of Economic Affairs (MOEA) Investment Commission (IC) announced that the penalty for unapproved large-scale illegal investment in the PRC would be increased. Unapproved investments valued higher than USD 10 million will face a penalty of 0.5 to 2.0 percent of the invested amount, up from 0.5 to 1.0 percent. The IC will also strengthen its semi-annual inspection regime for approved investments to ensure that the amount invested matches the approved application. To further strengthen enforcement, the IC announced on September 5 that it would increase the reward for informants of illegal investment activities from up to NTD 1 million to up to NTD 2 million (USD 60,000). Nevertheless, these efforts appear to have had little impact. In the first seven months of 2005, the IC issued fines in 281 illegal investment cases with penalties totaling NTD 2.2 million (USD 66,000) compared to NTD 30 million for all of 2004. China Helps Taiwan Investors -------------- ¶10. During September, China made a number of official efforts to gain favor with Taiwan investors. At a September 7 meeting in Beijing with the chairmen of over 100 local associations of Taiwan investors in the PRC, Vice Premier Wu Yi promised that the PRC would start to issue 3- to 5-year multiple-entry permits for Taiwan travelers. She announced that the PRC would provide five-year loans totaling RMB 30 billion aimed at attracting Taiwan investors in major infrastructure and high-tech industries. Wu also agreed that the new Shanghai school for children of Taiwan investors could use the term "Taiwan businessmen" (taishang) instead of "Taiwan compatriots" (taibao),allowing Taiwan's Ministry of Education to recognize its diplomas and subsidize tuition for Taiwanese students. Taiwan Investors Want Progress -------------- ¶11. On the other side of the Strait, Taiwan Premier Frank Hsieh met on September 21 with Taiwan investors returned from the Mainland during the Mid-Autumn Festival. According to media reports, many participants were disappointed by the lack of any new announcements on cross-Strait issues such as direct links, entry permits for Mainland visitors, or expansion of international flights to Taichung. PAAL