Identifier
Created
Classification
Origin
06TAIPEI2695
2006-08-09 08:55:00
UNCLASSIFIED
American Institute Taiwan, Taipei
Cable title:
NTD Loans Considered Foreign Direct Investment
how-toVZCZCXRO4935 RR RUEHGH DE RUEHIN #2695 2210855 ZNR UUUUU ZZH R 090855Z AUG 06 FM AIT TAIPEI TO RUEHC/SECSTATE WASHDC 1518 RUEATRS/DEPT OF TREASURY WASHDC INFO RUCPDOC/USDOC WASHDC RUEHBK/AMEMBASSY BANGKOK 3374 RUEHBJ/AMEMBASSY BEIJING 5528 RUEHUL/AMEMBASSY SEOUL 8001 RUEHGP/AMEMBASSY SINGAPORE 6550 RUEHKO/AMEMBASSY TOKYO 7910 RUEHML/AMEMBASSY MANILA 9773 RUEHJA/AMEMBASSY JAKARTA 3905 RUEHKL/AMEMBASSY KUALA LUMPUR 3543 RUEHHI/AMEMBASSY HANOI 3108 RUEHBY/AMEMBASSY CANBERRA 4269 RUEHWL/AMEMBASSY WELLINGTON 1539 RUEHHK/AMCONSUL HONG KONG 6737 RUEHGH/AMCONSUL SHANGHAI 0304 RUEHGZ/AMCONSUL GUANGZHOU 9484
UNCLAS TAIPEI 002695
SIPDIS
SIPDIS
STATE PLEASE PASS AIT/W AND USTR
STATE FOR EAP/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: NTD Loans Considered Foreign Direct Investment
SUMMARY
-------
UNCLAS TAIPEI 002695
SIPDIS
SIPDIS
STATE PLEASE PASS AIT/W AND USTR
STATE FOR EAP/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: NTD Loans Considered Foreign Direct Investment
SUMMARY
--------------
1. Taiwan monetary authorities recently began permitting secured NT
dollar (NTD) bank loans to serve as foreign direct investment (FDI)
in Taiwan as a way to absorb excess liquidity. However, Taiwan's
financial supervisory authorities are concerned that Taiwan
companies may be vulnerable to hostile foreign acquisition funded
through this channel. END SUMMARY.
Relaxation
--------------
2. Taiwan's Foreign Investment Commission (FIC) announced on July
28 it will expand the permissible sources of FDI to include secured
NTD loans provided by Taiwan banks from foreign currency remitted
into Taiwan. However, foreign investment projects funded by local
secured NTD loans are subject to strict requirements, including
certification of the investment and operation plans, submission of a
draft loan contract, and regular post-investment submission of
certified financial statements. The foreign investors must be
multinational corporations or actually engaged in business
activities.
3. "Paper companies" registered with such tax havens as Caiman and
Virgin Islands may not enjoy the privilege. In addition, the
capital must come from banks. Capital from other financial
institutions, such as insurance firms, is not permitted.
Industry and Management Technologies
--------------
4. This new provision and the abundance of available NTD funds
should attract foreign investors who will bring in industry and
management technologies, according to an FIC division chief. The
FIC is currently reviewing several projects funded with capital from
secured loans provided by local banks.
To Address Excess Liquidity
--------------
5. An important reason for the new provision is that Taiwan's
Central Bank of China (CBC) wants to absorb excess liquidity in the
banking sector by allowing foreign investors to obtain capital
needed for their FDI projects from the local banking sector. A
senior CBC official told AIT/T that the CBC originally suggested the
relaxation. According to the official, excess liquidity has
contributed to the very narrow interest rate gaps between deposits
and loans which, together with delinquent credit and cash card debt
problems, are major factors behind 14 of 45 Taiwan banks reporting
losses in the first half of 2006.
6. According to the FIC division chief, the Financial Supervisory
Commission (FSC) opposed the CBC's suggestion during interagency
discussions in late July. The FSC is concerned that Taiwan
companies, particularly banks and other financial institutions, may
be vulnerable to hostile acquisitions if foreign investors can use
local capital obtained from local banks.
Young
SIPDIS
SIPDIS
STATE PLEASE PASS AIT/W AND USTR
STATE FOR EAP/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: NTD Loans Considered Foreign Direct Investment
SUMMARY
--------------
1. Taiwan monetary authorities recently began permitting secured NT
dollar (NTD) bank loans to serve as foreign direct investment (FDI)
in Taiwan as a way to absorb excess liquidity. However, Taiwan's
financial supervisory authorities are concerned that Taiwan
companies may be vulnerable to hostile foreign acquisition funded
through this channel. END SUMMARY.
Relaxation
--------------
2. Taiwan's Foreign Investment Commission (FIC) announced on July
28 it will expand the permissible sources of FDI to include secured
NTD loans provided by Taiwan banks from foreign currency remitted
into Taiwan. However, foreign investment projects funded by local
secured NTD loans are subject to strict requirements, including
certification of the investment and operation plans, submission of a
draft loan contract, and regular post-investment submission of
certified financial statements. The foreign investors must be
multinational corporations or actually engaged in business
activities.
3. "Paper companies" registered with such tax havens as Caiman and
Virgin Islands may not enjoy the privilege. In addition, the
capital must come from banks. Capital from other financial
institutions, such as insurance firms, is not permitted.
Industry and Management Technologies
--------------
4. This new provision and the abundance of available NTD funds
should attract foreign investors who will bring in industry and
management technologies, according to an FIC division chief. The
FIC is currently reviewing several projects funded with capital from
secured loans provided by local banks.
To Address Excess Liquidity
--------------
5. An important reason for the new provision is that Taiwan's
Central Bank of China (CBC) wants to absorb excess liquidity in the
banking sector by allowing foreign investors to obtain capital
needed for their FDI projects from the local banking sector. A
senior CBC official told AIT/T that the CBC originally suggested the
relaxation. According to the official, excess liquidity has
contributed to the very narrow interest rate gaps between deposits
and loans which, together with delinquent credit and cash card debt
problems, are major factors behind 14 of 45 Taiwan banks reporting
losses in the first half of 2006.
6. According to the FIC division chief, the Financial Supervisory
Commission (FSC) opposed the CBC's suggestion during interagency
discussions in late July. The FSC is concerned that Taiwan
companies, particularly banks and other financial institutions, may
be vulnerable to hostile acquisitions if foreign investors can use
local capital obtained from local banks.
Young