Identifier
Created
Classification
Origin
06AITTAIPEI647
2006-03-01 22:47:00
UNCLASSIFIED
American Institute Taiwan, Taipei
Cable title:  

Economic Briefing for February 2006

Tags:  EINV EFIN ECON PINR TW 
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UNCLAS AIT TAIPEI 000647 

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STATE FOR EAP/RSP/TC, EAP/EP

USTR FOR WINTER AND WINELAND

USDOC FOR 4420/USFCS/OCEA/EAP/LDROKER
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E.O. 12958: N/A
TAGS: EINV EFIN ECON PINR TW
SUBJECT: Economic Briefing for February 2006

REF: (A) TAIPEI 514

UNCLAS AIT TAIPEI 000647

SIPDIS

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
SUBJECT: Economic Briefing for February 2006

REF: (A) TAIPEI 514


1. This cable summarizes selected recent economic events in
Taiwan in February 2006:

--Economic growth and expansion;
--Cross-Strait links are expanding;
--Listed companies repatriate earnings;
--Foreign investors acquire financial institutions;
--Duties assigned to ministers without portfolio;
--Taiwan promoting economic relations with India;
--Taiwan attracts foreign portfolio investment;
--Five-year alternative energy program;
--National Communication Commission set up.

Economic Growth Driven by Export Expansion
--------------


2. Reftel predicted that the export boom beginning in Q4 of
2005 would cause Taiwan authorities to adjust upward
Taiwan's official estimates of growth in 2005 and 2006. On
February 23, Taiwan's Statistical Bureau (SB) raised its
estimate of 2005 economic growth to 4.09% from 3.8%
estimated in November 2005, and raised its estimate of 2006
growth from 4.08% to 4.25%. The estimate of 2006 growth
would be even higher than 4.25% except for banks tightening
issuance and usage of credit cards and cash cards at the
request of Taiwan's legislature to resolve social problems
caused by debt delinquency. Per capita GNP in 2006 will
increase from US$15,676 in 2005 to US$16,208, comparable to
levels prevailing in some OECD nations, such as Greece. In
January 2006, seasonally adjusted export growth rose to 21%
up steadily from a single-digit rate in early 2005 and 14.5%
in Q4. Adjusted industrial growth in January 2006 increased
to 20.5%, also steadily up to 20% from merely 1% in Q1 and
9.5% in Q4 of 2005. Unemployment in January 2006 declined
to 3.89% in December from a two-year peak of 4.36% in August

2005. (Unemployment figures for January 2006 were not
available for this report.) Meanwhile, the inflation rate
dropped from 3.6% in August 2005 to 2.65% in January 2006.


Cross-Strait Mini-links Expanding
--------------


3. Mini-links operations (i.e., ferryboats from Taiwan's
Kinmen Island to the PRC port of Xiamen) were not affected
by Taiwan - Xiamen charter flights during the Lunar New Year
holiday (January 20 - February 13),according to the Kinmen
County Harbor Administration. A total of 49,000 passengers
traveled on Kinmen - Xiamen ferryboats during the 2006
holiday, up 31 percent from the same holiday period in 2005.
Two liberalization measures contributed to the growth. On
January 1, 2006, the PRC began permitting Fujian residents
one-day tours in Kinmen. Also in January 2006, Taiwan
authorities started allowing people registered as Kinmen
residents before 2001 (even if not residing there now) and
residents' relatives to travel to Xiamen by ferryboat. Mini-
link ferryboat transportation in 2005 grew 41% to 4,276
voyages, and ferryboat passengers increased nearly 30% to
277,000 persons.

Listed Companies Repatriate Earnings from China
-------------- --



4. Over 80% of the 1,100 companies listed on Taiwan's stock
market have invested in China. According to official Taiwan
statistics, their cumulative investment there through
December 2005 totaled NT$486.2 billion (or US$15.1 billion
at the exchange rate of NT$32 per USD). This accounts for
one-third of Taiwan's total registered investment in China.
The cumulative earnings these companies repatriated back to
Taiwan totaled NT$38.7 billion (or US$1.21 billion)
equivalent to 7.9% of their total investment in China.
Electronics firms have been major investors in China with
cumulative investment there totaling NT$222.5 billion
(US$6.95 billion),about 45.8% of Taiwan's total registered
investment in China, accounting for three-quarters of total
earnings repatriated to Taiwan. On the contrary, listed
companies producing wires & cables, glass and paper, and
department stores and chain stores have not reported any
repatriated earnings.

Foreign Firms Participate in Financial Consolidation
-------------- --------------


5. A growing number of foreign investors are buying into
Taiwan's financial institutions. Two foreign investors will
obtain 27% of equity in Taishin Financial Holding through
private placement. Newbridge Asia IV.L.P, a U. S. buyout
company, will acquire 22.3% of Taishin equity for NT$27
billion (or US$0.84 billion). Nomura Securities Company of
Japan will obtain 6.55% equity in Taishin for NT$4 billion.
In September 2005, Taishin won a bid for controlling
interest in the state-owned Changhwa Commercial Bank.
Recently, U.S. company AIG decided to acquire 100% equity in
Taiwan's Central Insurance (non-life) for NT$6 billion. The
merger will make AIG (Taiwan) the third largest non-life
insurance firm in Taiwan. Foreign purchases of local
financial institutions included Citibank's 15% stake in
Fubon, Prudential Life's 5% in E. Sun Bank, New York Life's
5% in Bank of Overseas Chinese, and GE Capital's 24.9% in
Cosmos Bank (for NT$9 billion or US$0.28 billion).

Duty Assignment for Ministers without Portfolio
-------------- --


6. Taiwan's cabinet was reshuffled in late January. Vice
Premier Tsai Ing-wen has been assigned to chair the EY
Economic and Finance Committee, which coordinates government
policy on economic and financial issues. Duties assigned to
ministers without portfolio handling economic and financial
issues are as follows:
--Fu Li-yeh: social welfare;
--Hsu Chi-hsiung: cross-Strait, foreign affairs, and
national defense;
--Lin Feng-ching: science and technology;
--Hu Sheng-cheng: matters related to the Ministry of
Finance, the Financial Supervisory Commission, and National
Development Fund;
--Ho Mei-yueh: affairs related to the Ministry of Economic
Affairs, Council for Economic Planning and Development
Council, Council of Agriculture, and Public Construction
Commission, Fair Trade Commission, and Consumer Protection
Commission.

Closer Economic Relations with India
--------------


7. Taiwan is (again) promoting a program to diversify
Taiwan's investment away from China to other developing
economies, this time, India. On February 11, the Taiwan-
India Association (TIA) was established in Taipei. DPP
Party Chairman Yu Shyi-kun was elected Chairman, and
Minister without portfolio Ho Mei-yueh was appointed
Secretary General. Economic Minister Hwang Ing-san and

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National Science Council Chairman Chen Chien-jen are TIA
board members. Taiwan's state-owned Chinese Petroleum
Corporation plans to build a petroleum refinery and a
gasoline station network in India. The Taiwan government
encourages local computer firms to invest in India. India
is Taiwan's 26th largest trading partner. Two-way trade
between these two nations in 2005 totaled US$1.9 billion.
Taiwan's investment in India as of January 2006 totaled only
US$14 million. Four similar associations have been set up
to promote economic relations with Mongolia, Russia, Tibet,
and five nations in Central Asia.

Large Foreign Portfolio Investment Flows to Taiwan
-------------- --------------


8. A large amount of foreign portfolio investment flowed
into Asian nations since the second half of 2005. Among
Asian nations (excluding Japan),Taiwan attracted the
largest amount of foreign portfolio investment funds. As of
December 2005, cumulative net foreign portfolio investment
in Taiwan totaled US$8.3 billion, compared to the US$3.26
billion in China, US$590 million in South Korea, US$530
million in Singapore, and US$200 million in Hong Kong. The
amount in Japan was US$14.68 billion. Foreign portfolio
investors hold 32.41% equity in Taiwan's listed companies as
of February 6, already exceeding the 28% target set for 2008
by the Council for Economic Planning and Development as part
of plans to internationalize Taiwan's economy.

Taiwan Promotes Alternative Energies
--------------


9. Higher petroleum costs have prompted Taiwan to adopt a
very ambitious, perhaps unrealistic, five-year alternative
energy development program. Taiwan's Ministry of Economic
Affairs (MOEA) will require that diesel oil should contain
at least 5% bio-diesel made from recycled edible oil. Wind
power generation in 2010 should increase to 4.2% of total
power generation from 0.02% in 2004, and the share for
geothermal power generation should increase from nothing to
0.1% during the same period. These targets may be
realistic, but they are certainly ambitious. The planned
installed power generation capacities for five alternative
energies are as follows:
--Water: from 1.91 million kilo watts (MKW) to 2.168 MKW;
--Wind: from 0.009 MKW to 2.159 MKW;
--Solar: 0.00059 MKW to 0.021 MKW;
--Thermal: 0 to 0.005 MKW;
--Bio-energy: 4.673 MKW to 7.41 MKW.

National Communication Commission (NCC)
--------------



9. On February 17, Taiwan's Executive Yuan (EY) appointed
12 NCC members (three of the 12 NCC appointees subsequently
refused to serve to protest political intervention). On
February 22, the nine remaining appointees assumed their
duties as NCC commissioners and elected Su Yung-chin (KMT)
as NCC Chairman. According to the NCC Organic Law, Premier
Su Tseng-chang is required to confirm the chairman elected
and his deputies within seven days after election. The NCC
was established as an independent body to handle
broadcasting and communications issues. However, the EY has
asked the Council of Grand Justices to review whether NCC
organization violates Taiwan's Constitution.

KEEGAN