TAIWAN HIGHLIGHTS SUCCESSFUL TECHNOLOGY SECTOR

UNCLAS SECTION 01 OF 02 TAIPEI 001967 SIPDIS SENSITIVE SIPDIS STATE ALSO FOR EAP/TC USTR FOR STRATFORD AND ALTBACH TREASURY FOR OASIA/TTYANG COMMERCE FOR 4431/ITA/MAC/AP/OPB/TAIWAN/MCHOI E.O. 12958: N/A TAGS: ECON ETRD EINV PREL KIPR ELAB TW SUBJECT: TAIWAN HIGHLIGHTS SUCCESSFUL TECHNOLOGY SECTOR TAIPEI 00001967 001.2 OF 002 ¶1. SUMMARY. Officials and foreign investors highlighted Taiwan's technology and financial sectors during AIT/W Trade and Commercial Programs Director Rick Ruzicka's August 13-17 visit to Taiwan. Council for Economic Planning and Development (CEPD) Chairwoman Ho emphasized Taiwan industry's high-technology prowess, an observation reinforced during Ruzicka's visit to a major U.S. technology investor, and identified finance, health care, and telecommunications as Taiwan's priorities for future development. Financial Supervisory Commission (FSC) Chairman Hu Sheng-Cheng elaborated on financial sector prospects, identifying wealth management as a particular focus. END SUMMARY. ¶2. (SBU) Focusing on the technology sector, Council for Economic Planning and Development (CEPD) Chairwoman Ho Mei Yueh observed that Taiwan companies are cooperating with Silicon Valley counterparts on research and development, but must also increase their cooperation with Japanese firms on manufacturing technology. She noted that Taiwan now has thirteen 12-inch wafer factories, accounting for roughly half of global capacity. Taiwan firms continue to focus on semiconductor foundry work, explained Ho, but are beginning to expand their activity in the DRAM and Flash drive segments. According to Ho, Taiwan firms now have approximately 45% of the global large-scale thin film transistor/liquid crystal display (TFT/LCD) market. When plasma screens are included, however, Taiwan's global flat-screen share drops to 35%. In Ho's view, improvements in TFT/LDC picture quality will cause that technology to gain market share at the expense of plasma, which is relatively less energy-efficient. Taiwan's lone plasma screen manufacturer has already stopped production, she added. ¶3. (SBU) During an August 15 visit to U.S.-based Corning's Taichung manufacturing facility, its largest in the world, Corning management outlined their company's success in supplying Taiwan manufacturers with TFT/LCD glass. Corning, whose cumulative investments in Taichung and Tainan manufacturing facilities make it the largest U.S. investor in Taiwan, is a leading supplier to nearby computer, television, 
and other electronic component manufacturers. Although much final assembly now takes place in mainland China, initial assembly of flat panel displays still takes place in Taiwan. Corning's Taichung and Tainan operations are located in close proximity to Taiwan's technology clusters in the Tainan, Taichung, and Hsinchu science parks. Corning executives expressed satisfaction with Taiwan's business climate, particularly what they characterized as strong enforcement of intellectual property rights. Corning management also said the company had no problems finding and retaining qualified staff for its Taichung operation, and noted that 80 percent of the plant's staff hold college degrees. ¶4. (SBU) CEPD Chairwoman Ho stated that Taiwan has identified finance, medical care, and telecommunications as its three priority areas for service sector development. She noted that Taiwan authorities still control roughly 42% of Chunghwa Telecom. Chunghwa now sells bonds on the New York exchange, however, and in the future will increase sales of equity holdings to hasten privatization of the company. Overall, said Ho, Taiwan is trying to promote WiMax broadband, and Taiwan will host a WiMax forum in October in order to encourage the new standard. Invoking past cooperation with Intel, Ho said Taiwan will encourage cooperation with U.S. firms on next-generation wireless technology. In the meantime, she explained, Taiwan is coordinating with Japan, Korea, and others in the region on setting a new wireless standard. On health care, Ho identified joint and liver transplants, research, and therapy as an area of competitive advantage which Taiwan hopes to exploit, in part to provide another stream of income for Taiwan doctors and hospitals caught up in the contortions of the pharmaceutical sector's "black hole" pricing gap (see also septel). ¶5. (SBU) Financial Supervisory Commission (FSC) Chairman Hu TAIPEI 00001967 002.2 OF 002 Sheng-Cheng outlined financial sector reforms in greater detail, noting that Taiwan plans to allow insurance companies to invest up to 45% of their assets abroad, up from 35%. Delineating between Taiwan and China research and development (R&D) capabilities, Hu asserted that the majority of foreign R&D investment on the mainland is oriented toward adapting products to the Chinese market. In contrast, he maintained, Taiwan has more advanced capacity in basic R&D. Hu also highlighted Taiwan's plans to develop its capacity as a wealth management center, noting that UBS has recently opened two new Taiwan branches to focus on wealth management services, and that Mizuho and Standard Chartered are also expanding their Taiwan operations in this area. ¶6. (SBU) COMMENT. Taiwan's technology sector is flourishing, but sustained success is likely to depend on continued legal reform and liberalization, as well as maintenance of Taiwan's vaunted ability to remain ahead of the technological curve. On that note, a Corning interlocutor sounded a prescient note when he observed that Corning has built a finishing plant outside Beijing. Taiwan is not alone in this race. END COMMENT. WANG