VZCZCXRO4571
RR RUEHGH
DE RUEHIN #0253/01 0320851
ZNR UUUUU ZZH
R 010851Z FEB 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 3959
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCPDOC/USDOC WASHDC
RUEHBK/AMEMBASSY BANGKOK 3574
RUEHBJ/AMEMBASSY BEIJING 6316
RUEHUL/AMEMBASSY SEOUL 8442
RUEHGP/AMEMBASSY SINGAPORE 6801
RUEHKO/AMEMBASSY TOKYO 8461
RUEHML/AMEMBASSY MANILA 9942
RUEHJA/AMEMBASSY JAKARTA 4002
RUEHKL/AMEMBASSY KUALA LUMPUR 3679
RUEHHI/AMEMBASSY HANOI 3229
RUEHBY/AMEMBASSY CANBERRA 4446
RUEHWL/AMEMBASSY WELLINGTON 1714
RUEHHK/AMCONSUL HONG KONG 7546
RUEHGH/AMCONSUL SHANGHAI 0793
RUEHGZ/AMCONSUL GUANGZHOU 9973

UNCLAS SECTION 01 OF 03 TAIPEI 000253 
 
SIPDIS 
 
SIPDIS 
 
STATE PLEASE PASS USTR 
STATE FOR EAP/RSP/TC, EAP/EP 
USTR FOR ALTBACH and Stratford 
USDOC FOR 3132/USFCS/OIO/EAP/WZARIT 
TREASURY FOR OASIA/LMOGHTADER 
TREASURY ALSO PASS TO FEDERAL RESERVE/BOARD OF 
GOVERNORS, SAN FRANCISCO FRB/TCURRAN, NEW YORK FRB/MBOLIS 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ECON PINR TW
SUBJECT: Taipei Economic Brief for January 2007 
 
REF:  (A) TAIPEI 0049, (B) TAIPEI 0063, (C) 06 TAIPEI 4175 
 
¶1.  This cable summarizes selected January 2007 economic events in 
Taiwan: 
--Economic Performance in 2006; 
--Science-based Industrial Parks; 
--PRC Tourists to Taiwan's High-Tech Centers; 
--Major Investment Projects; 
--China Rebar Pacific Group Collapse; 
--Problem Banks Taken Over; 
--Transfer of 0.18-micron Wafer Feb Technologies to China; 
--2007 Central Budget Fails to Pass Legislature; 
--Three More Taiwan Firms Become WEF Members; 
--Taiwan to Make Vaccines. 
 
Economic Performance in 2006 
---------------------------- 
 
¶2.  In 2006, exports accounted for 60% of Taiwan's GDP and 75% of 
Taiwan's economic growth.  Exports grew 13% y-o-y to US$224 billion, 
while imports increased 11% to US$202.7 billion.  Export expansion 
drove real GDP growth above four percent and kept unemployment below 
4% in 2006.  A decline in international petroleum prices kept 
Taiwan's inflation rate below one percent in 2006. 
 
Science-based Industrial Parks 
------------------------------ 
 
¶3.  Taiwan's National Science Council (NSC) projects that sales from 
Taiwan's three science-based industrial parks will increase 11% to 
exceed NT$2 trillion (US$61.5 billion) in 2007.  There are 776 
companies currently operating at these three parks, including 475 at 
the Hsinchu Science-based Park, 103 at the Central Taiwan 
Science-based Park, and 198 at Southern Taiwan Science-based Park. 
Eleven percent of these firms are foreign-invested companies. 
 
PRC Tourists to Taiwan's High-Tech Centers 
------------------------------------------ 
 
¶4.  Taiwan's science parks have opened their doors to many 
international tourists and may open soon to PRC tourists as well. 
The Mainland Affairs Council (MAC) has indicated that it is working 
on revisions to the regulations for PRC tourists in order to permit 
them to tour the parks.  MAC expects the parks to be incorporated 
into tours in Hsinchu and Tainan.  Groups of Mainland tourists will 
have to submit applications to visit the parks and will be approved 
on a case-by-case basis.  Taiwan and PRC officials have indicated 
that they are likely to reach agreement soon to open Taiwan further 
to Mainland tourists. 
 
Major Investment Projects in 2007 
--------------------------------- 
 
¶5.  Economic Minister Steve Chen predicted Taiwan's private 
investment in 2007 will grow 11.4% to NT$1.65 trillion (US$51 
billion) and become a driving force behind Taiwan's economic growth 
this year.  Semiconductor and LCD industries are expected to lead in 
private investment.  Powerchip Semiconductor recently announced a 
joint venture with Japan's Elpida Memory that will invest US$1.6 
billion in 12-inch wafer semiconductor manufacturing facilities in 
Taichung in 2007.  In all, some industry observers expect Taiwan 
semiconductor firms to invest more than US$30 billion over the next 
three to five years building as many as ten new plants in Taiwan. 
 
China Rebar Pacific Group (CRPG) Collapses 
------------------------------------------ 
 
¶6.  On January 4, 2007, CRPG announced reorganization plans for two 
 
TAIPEI 00000253  002 OF 003 
 
 
affiliated companies, China Rebar (CR) and Chia Hsin Food and 
Synthetic Fiber (CFSF), triggering declines in share prices of all 
companies affiliated with CRPG.  The announcement also prompted a 
run on Chinese Bank (CB, Zhonghua Yinhang) (ref A) and dumping of 
commercial paper underwritten by the Great Chinese Bills Finance 
(GCBF) Company.  Authorities have indicted 30 major shareholders and 
senior executives of CRPG and affiliated companies, and restricted 
87 from leaving the island.  Financial Supervisory Commission (FSC) 
Chairman Shih Jun-ji resigned to take responsibility for the 
scandal, and was replaced at FSC by Council for Economic Planning 
and Development Chairman Hu Sheng-cheng.  Minister Without Portfolio 
Ho Mei-yueh took over as the new CEPD Chairman. 
 
Problem Banks Taken Over 
------------------------ 
 
¶7.  In late December 2006 and early January 2007, Taiwan took over 
three insolvent banks: Taitung Business Bank (TBB) (ref C), 
Enterprise Bank of Hualien (EBH, Hualien Qiyin), and Chinese Bank 
(ref A).  The Financial Supervisory Commission (FSC) had repeatedly 
urged these three banks and another four problem banks to improve 
their financial status on their own ever since Taiwan's legislature 
in June 2005 denied additional funding for the Financial 
Reconstruction Fund (FRF, ref B).  The run on Chinese Bank prior to 
its takeover is seen as unlikely to lead to systemic problems as 
Taiwan's banking community has substantially improved its quality in 
recent years.  The average non-performing loan (NPL) ratio dropped 
steadily from nearly 12% in March 2002 to 2.1%, the lowest over the 
past two decades. 
 
Transfer of 0.18-micron Wafer Fab Technologies to China 
--------------------------------------------- -------- 
 
¶8.  Following its December 2006 approval for two Taiwan firms to 
build two 8-inch wafer semiconductor plants in China, the Ministry 
of Economic Affairs (MOEA) announced at the end of December 2006 
that it will permit transfer of 0.18-micron chip processing 
technologies to China for use by the investors themselves.  The 
announced permit was based on a December 2004 amendment to the 
Wassennaar Agreement that removed controls over 0.18-micron 
semiconductor fab technologies.  According to MOEA, Taiwan currently 
has ten 12-inch wafer semiconductor plants which account for 
one-quarter of total 12-inch wafer semiconductor plants in the 
world. 
 
2007 Central Budget Fails to Pass Legislature 
--------------------------------------------- 
 
¶9.  The Legislative Yuan (LY) failed to enact the central budget 
proposed for the 2007 fiscal year (January 1 to December 31) prior 
to the closure of its last session on January 19.  The LY also 
failed to call a special session to review the 2007 budget. 
Consequently, central authorities will have limited funding without 
authorization to launch major projects.  The LY will not review the 
budget bill again until its next session in March.  The Executive 
Yuan asserts that a long delay in legislation of the central budget 
could hurt Taiwan's real GDP growth. 
 
Three More Taiwan Firms Become WEF Members 
------------------------------------------ 
 
¶10.  The World Economic Forum (WEF), a Geneva-based independent 
international organization committed to improving the state of the 
world, offered 25 Taiwan companies opportunities to become WEF 
members.  Taiwan's High Tech Computer (HTC), Chunghwa Telecom, and 
Chinese Petroleum Corp. (CPC) were recently admitted as members. 
Their joining the WEF is expected to increase interactions and 
exchanges between Taiwan and the WEF.  HTC Chairman Cher Wang, HTC 
 
TAIPEI 00000253  003 OF 003 
 
 
President Chen Wen-chi and Chunghwa Telecom President Lu Hsueh-chin 
took part in the WEF 2007 annual meeting in Davos, Switzerland 
January 24-28. 
 
Taiwan to Make Vaccines 
----------------------- 
 
¶11.  Vaxin, a U.S. biotech company, is negotiating with Taiwan firms 
for manufacture of its latest products in Taiwan, including 
intranasal and "stick-on" vaccines.  Vaxin, formed in 1997, was the 
first company in the world to introduce a "stick-on" vaccine which 
is delivered through the skin.  Vaxin will also release a vaccine 
for avian influenza in 2008.  Licensing rights for production of the 
vaccines in France were sold to Sanofi-aventis, France's largest 
pharmaceutical company.  The licensing rights in South Korea were 
recently sold to Kolmar, a Korean cosmetics company. 
 
YOUNG