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UNCLAS SECTION 01 OF 03 TAIPEI 001233 
 
SIPDIS 
 
STATE PASS TO AIT/W 
STATE ALSO FOR EAP/RSP/TC AND EB/TEX 
 
E.O. 12958: N/A 
TAGS: KTEX ETRD TW
SUBJECT: TAIWAN TEXTILE INDUSTRY SEARCHES FOR 
PROSPERITY 
 
Summary:  2004 statistics show Taiwan's textile 
industry remains competitive, with yarn and fiber 
industries showing strong growth, while garment 
manufacturers continue to move offshore in search 
of lower costs.  As downstream industries like 
garment manufactures move, midstream manufacturers 
doing cutting and dyeing believe they must move 
with their customers.  China is no longer the 
preferred destination for some manufacturers, who 
cite increasing restrictions on textile 
investment, lack of reliable water and power, and 
concerns about trade secrets and holding on to 
good employees as reasons to look for other 
attractive investment destinations.  Left unspoken 
are concerns about potential restrictions on 
exports from China to the U.S. market, concerns 
that Taiwan companies may be susceptible to 
political pressures, and in some cases, a trace of 
Taiwan nationalism.  Vietnam is proving to be the 
most attractive alternative, with several 
companies already establishing operations and 
others actively considering doing so.  End 
Summary. 
 
Textile Performance in January 2005 
----------------------------------- 
 
¶2. According to Taiwan Customs statistics, 
Taiwan's January 2005 textile and apparel exports 
were USD 930 million, up 15 percent from the same 
period of 2004.   Yarn products performed best, 
accounting for over two-thirds of total textile 
exports, at USD 652 million.  Yarn exports grew 18 
percent compared to January 2004.  On the other 
hand, garment exports decreased by 4.7 percent to 
just USD 97 million. 
 
TTF Seminar- The Challenge for Taiwan 
------------------------------------- 
 
¶3. On February 24, 2005, The Taiwan Textile 
Federation (TTF) hosted a seminar titled "The 2005 
Quota Free Means World Trade Free.   Is it 
Challenge Free?"  Over 150 people attended this 
seminar.  The keynote speaker was Mr. Chen Shou- 
chung, Chairman of the Tah Tong Textile Co.  Chen 
predicted that Taiwan fibers and yarns would 
become increasingly competitive while processed 
products with large production runs, like simple 
textiles and garments, would face fierce 
competition from China and India. 
 
¶4. In the current environment, with high energy 
costs and a weakening U.S. dollar, Chen suggested 
that Taiwan manufacturers should stop focusing on 
cost-cutting and instead emphasize product 
quality.  In his view, Taiwan should be shifting 
to small-quantity/high-quality textile commodities 
with high value added.  Chen also raised the 
potential threat of Taiwan's economic 
marginalization, noting an international trend 
towards regional trade agreements that exclude 
Taiwan.  He said that in addition to China's 
rapidly increasing production capacity in 
garments, India, Turkey, Brazil and Pakistan are 
improving textile production technology and 
product quality. 
 
¶5. In an effort to stay competitive, Chen 
suggested that Taiwan textile firms should 
strengthen marketing capabilities, launch 
strategic alliances among up and downstream 
suppliers and customers, and be aware of related 
international regulations. 
 
Up-Stream Expectations Positive 
------------------------------- 
 
¶6. Dr. Hong Huei-song, Chief of Consumer Goods and 
Chemical Industries Division, Industrial 
Development Bureau (IDB), said he believed that in 
2005 Taiwan textile up-stream sectors, including 
man-made fibers and fiber texturing products, 
would remain internationally competitive, and 
might grow by as much as 20 percent; he estimated 
that mid-stream sectors, such as filament exports, 
would grow based on projections that the garment 
industry in China will grow rapidly in the post- 
quota environment.  This is expected to lead to 
increased demand for filament production from 
Taiwan.  In the down-stream sector, Hong expected 
Taiwan garment exports could fall by as much as 
fifty percent in 2005.  Garment makers in Taiwan 
are increasingly finding that production costs in 
Taiwan are too high.  Those that remain for the 
most part do so because they do not have the 
resources to move overseas. 
 
¶7. Hong commented that in addition to China and 
India, Korea is a major competitor for Taiwan in 
the textile industry due to similar levels of 
industrial development.  China and India produce 
natural fibers while Taiwan and Korea emphasize 
quality improvement of man-made fibers. 
 
Taiwan Government Assistance 
---------------------------- 
 
¶8. Official agencies including Ministry of 
Economic Affairs (MOEA) Department of Industrial 
Technology (DIT), IDB, Board of Foreign Trade 
(BOFT) and Small & Medium Enterprise 
Administration (SMEA) have allocated NTD 1.1 
billion, NTD 1.4 billion and NTD 1.7 billion in 
fiscal years 2005, 2006 and 2007 respectively to 
assist textile manufacturers to: (1) establish 
production lines globally, (2) promote company e- 
commerce capabilities, (3) improve industry R&D 
technology in an attempt to upgrade product 
quality, (4) cultivate general textile expertise 
through training and scholarships, and (5) 
establish a good production environment in Taiwan. 
 
Manufacturers Moving Offshore - But Not to China 
--------------------------------------------- --- 
 
¶9. Following the decision by Formosa Plastics 
Group to develop polyester chips and nylons in 
Vietnam several years ago, other industry leaders 
are also establishing operations in Vietnam, 
leading to a clustering effect.  Leading garment 
manufacturers such as Makalot Industrial Co. and 
Roo Hsing Garment Co. Ltd. have already invested 
there.  Manufacturers in the mid-stream sectors 
are also planning to move to Vietnam.  Nan Yang 
Dye/Finish Co. Chairman Ho Jun said that the dye 
and finish factories have no choice but to follow 
their customers in Taiwan's garment industry 
offshore.  His company plans to complete a 
sizeable investment in Vietnam by the end of 2005. 
Taiwan textile factories are forming complete, 
integrated production lines in Vietnam. 
 
¶10. Tainan Textile Co. now operates yarn- 
manufacturing facilities in Vietnam with an annual 
capacity of 300,000 spindles.  Formosa 
Petrochemical Corporation and Chung-Shing Textile 
Co.'s Vietnam plants now produce 200,000 and 
110,000 spindles of yarn, respectively.  The local 
press reports that these companies plan to expand 
production capacity in 2005. 
 
¶11. In a meeting between representatives from the 
U.S. Import Administration and the Taiwan Textile 
Federation (TTF) on March 3, 2005, Mr. Roland 
Tsia, Chairman of the Formostar Garment Co. 
 
SIPDIS 
explained that in response to mainland Chinese 
concerns about over-investment in the garment and 
yarn sectors, China now discourages investment 
from foreign companies in these down and mid- 
stream sectors.  China continues to welcome 
investment in the "up-stream" textile industry 
producing yarns and fibers.  Tsai complained that 
Chinese textile manufacturers are luring experts 
and managers from foreign companies located in 
China with extremely high pay in the first 2-3 
years in an attempt to improve domestic expertise. 
However, after improving the technical and 
management skills of their domestic employees, the 
Chinese manufacturers will abruptly decrease the 
salary of these experts and managers in order to 
drive them out.  Tsai believes this is a concerted 
business strategy to allow Chinese companies to 
rapidly improve their competitiveness, to the 
detriment of Taiwan experts and manufactures. 
 
Comment: The world is bigger than China 
--------------------------------------- 
 
¶12.  Comment: Not surprisingly given the TTF's 
close ties to the Taiwan government, none of the 
participants in the February 24 seminar or the 
March 3 discussion with TTF encouraged investment 
in China.  Manufacturers in Taiwan have long been 
aware of the need to reduce costs to stay 
competitive in the global textile market and have 
seen offshore manufacturing as their only 
recourse.  Taiwan textile companies have been 
investing heavily in China for several years in 
search of lower costs and many tell us they will 
continue to do so.  But for some, China is clearly 
no longer the only attractive overseas investment 
destination.  End Comment. 
 
PAAL