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

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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