VZCZCXRO4919
RR RUEHGH
DE RUEHIN #2430/01 3050719
ZNR UUUUU ZZH
R 010719Z NOV 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 7276
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCPDOC/USDOC WASHDC
RUEHBK/AMEMBASSY BANGKOK 3869
RUEHBJ/AMEMBASSY BEIJING 7406
RUEHUL/AMEMBASSY SEOUL 8991
RUEHGP/AMEMBASSY SINGAPORE 7044
RUEHKO/AMEMBASSY TOKYO 9191
RUEHML/AMEMBASSY MANILA 0181
RUEHJA/AMEMBASSY JAKARTA 4135
RUEHKL/AMEMBASSY KUALA LUMPUR 3819
RUEHHI/AMEMBASSY HANOI 3394
RUEHBY/AMEMBASSY CANBERRA 4631
RUEHWL/AMEMBASSY WELLINGTON 1899
RUEHHK/AMCONSUL HONG KONG 8690
RUEHGH/AMCONSUL SHANGHAI 1444
RUEHGZ/AMCONSUL GUANGZHOU 0629

UNCLAS SECTION 01 OF 03 TAIPEI 002430 
 
SIPDIS 
 
SIPDIS 
 
STATE PLEASE PASS USTR 
STATE FOR EAP/RSP/TC, EAP/EP 
USTR FOR KATZ AND STRATFORD 
USDOC FOR 3132/USFCS/OIO/EAP 
TREASURY FOR OASIA/TTYANG AND HAARSAGER 
TREASURY ALSO PASS TO FEDERAL RESERVE/BOARD OF 
GOVERNORS, SAN FRANCISCO FRB/TERESA CURRAN, AND NEW YORK FRB MARI 
BOLIS 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ECON PINR TW
SUBJECT: Taipei Economic Brief for October 2007 
 
 
¶1.  Summary.  This cable summarizes selected October 2007 economic 
events in Taiwan.  Taiwan enjoyed economic expansion, increased 
investment, but faced inflationary pressure...Export orders moving 
to new high in 2007... Taiwan's semiconductor sector passes U.S. in 
production capacity...Non-electronics industries also expand...Big 
money for Biotech and WiMax...Two Taiwan insurance firms to set up 
subsidiaries in China...Backdoor to Taiwan opens for China's largest 
bank...Tighter criteria will push financial holding companies to 
merge...More, and better educated, women in the workforce...Hsinchu 
exports booming...US high-tech firm sets up Taiwan base for Greater 
China market....  END SUMMARY. 
 
Statistics - Expansion, Inflation, Investment Accelerate 
--------------------------------------------- -------- 
¶2.  In the third quarter (Q3), increased domestic and external 
demand stimulated Taiwan's economy to expand, while inflationary 
pressure continued to build.  Y-o-y private consumption growth in Q3 
accelerated to nearly 4% compared to 0.4% a year ago.  Meanwhile, 
y-o-y export growth rose into double digits.  Manufacturing growth 
in Q3 reported a three-and-a-half-year high of 11.4%.  To meet 
growing demand, the private sector investment increased to expand 
production capacity, mainly in the semiconductor and flat panel 
industries.  Approved foreign direct investment growth accelerated 
dramatically, increasing from 87% y-o-y in Q2 to 150% in Q3.  The 
unemployment rate in Q3 inched up from 3.8% in Q1 to 4.0% which is 
still the lowest Q3 unemployment figure for the past seven years. 
The consumer price index (CPI) in Q3 rose 1.5% from a year ago. 
Higher crude oil import costs and typhoons, which seriously 
disrupted produce supply, drove up the CPI growth to a two-year high 
of 3.1% in September and even higher in October. 
 
Export Orders Will Hit New High in 2007 
--------------------------------------- 
¶3.  The Ministry of Economic Affairs (MOEA) projects that export 
orders in 2007 will set a new high of US$340 billion.  Export orders 
in September 2007 grew 16% year-on-year to a new high of US$30.9 
billion.  With strong demand for notebook computers and other OEM 
manufactures, export orders for IT and telecommunications products 
in September 2007 increased by 28.5% to US$6.8 billion.  Export 
orders for consumer electronics grew 17.6% to US$7.5 billion.  These 
two categories accounted for 46% of total export orders.  Hong Kong 
and China were Taiwan's top source of export orders, with orders in 
September totaling US$8.5 billion.  Orders from the United States 
followed at US$7.6 billion.  Export orders from January to September 
2007 totaled US$250.7 billion, up 15% over the same period last 
year. 
 
No. 2 in Semiconductor Production Capacity 
------------------------------------------ 
¶4.  Taiwan will soon surpass the United States as the world's Number 
2 in semiconductor production capacity.  The Industrial Technology 
Research Institute (ITRI) reported that Taiwan will account for 18% 
of the world's total semiconductor production capacity in 2007, up 
from 12% in 2000.  Japan still ranks first, although its share is 
expected to decline to 24%.  The U.S. should come in at 17%. 
Twelve-inch silicon wafer plants constitute 68% of Taiwan's total 
production capacity.  This ratio will increase as 8-inch silicon 
wafer plants are retired from DRUM production. 
 
Non-electronic Industries also growing 
-------------------------------------- 
¶5.  The Council for Economic Planning and Development (CEPD) 
reported that Taiwan's non-electronic industries expanded 
substantially in 2001-2006 after industrial relocation caused these 
industries to shrink during 1993-2000.  Technology advances pushed 
up the annual value added per worker of the non-electronic 
industries in 2006 to NT$5.4 million (US$166,150), more than double 
 
TAIPEI 00002430  002 OF 003 
 
 
the NT$2.6 million in 1993.  The annual production value of the 
non-electronic industries in 2006 was NT$8.63 trillion (US$265 
billion), nearly double the figure in 1993. 
 
Big Money for Biotech 
--------------------- 
¶6.  Starting in the 1980s Taiwan has tried to develop a local 
biotech industry through the establishment of biotechnology research 
and development organizations.  Taiwan has 95 business incubation 
centers, 48 of which are biotech incubation centers.  The number of 
biotech companies spun off from these biotech incubation centers 
shot up from 117 in 2002 to 268 in 2006, including 34 listed on the 
Taiwan Stock Exchange and 17 on the over-the-counter (OTC) market. 
Seven of the eight planned biotech industrial parks have opened. 
Taiwan authorities invested NT$21.5 billion (US$661.5 million) in 
the biotechnology industry in 2006, with R&D accounting for 60% of 
this figure.  Private biotech investment in 2006 amounted to NT$21 
billion (US$646 million), mainly in health foods, pharmaceuticals, 
biomedicine, and medical devices.  The biotech industry has seen an 
average revenue growth of 12% over the past five years as biotech 
industry clusters started emerging. 
 
Big Money for WiMax 
------------------- 
¶7.  The Ministry of Economic Affairs (MOEA) signed a memorandum of 
understanding (MOU) with five multinational telecom corporations to 
help Taiwan's six licensed WiMax (worldwide interoperability for 
microwave access) operators build infrastructure.  Alcatel-Lucent, 
Motorola, Sprint Nextel, Nokia-Siemens Networks, and Starent 
Networks have committed to supply Taiwan the required equipment 
(e.g., core network and base stations) and transfer technologies to 
local firms for production of consumer products.  Under the 
arrangement, Taiwan will serve as a testing ground for new WiMax 
products and applications while the island has a better chance to 
obtain a leading position in global WiMax chains.  Economic Minister 
Steve Chen estimated that Taiwan's cumulative WiMax investment will 
reach US$664 million, second only to that of the United States. 
MOEA estimates the annual production value of Taiwan's WiMax-related 
products will be NT$140 billion (US$4.3 billion) by 2012. 
 
Two Taiwan Firms to Set up Insurance Firms in China 
--------------------------------------------- ------ 
¶8.  In October, the PRC approved two Taiwan insurance groups to set 
up subsidiaries.  Taiwan's Cathay Financial Holding (CFH) will 
organize a non-life insurance subsidiary in Shanghai, which will be 
Taiwan's first 100%-owned insurance subsidiary in China.  The 
China-based subsidiary will have a capital of US$29 million. 
Taiwan's Shin Kong Financial Holding will enter into a life 
insurance joint venture with the PRC's Hainan Airlines in Beijing. 
Each party will contribute 50% of the joint venture capital of 
RMB800 million.  In 2005, Cathay Life Insurance set up Taiwan's 
first insurance joint venture named Cathay Life Insurance (Shanghai) 
with Shanghai-based China Eastern Airlines.  Taiwan insurance firms 
already operate 14 representative offices in China, including seven 
(five in Beijing and one each in Chengdu and Shanghai) by life 
insurance firms and another seven (five in Shanghai and two in 
Beijing) by non-life insurance firms.  Taiwan insurance firms do not 
operate any branches in China. 
 
A PRC Bank - In Taiwan? 
----------------------- 
¶9.  The PRC's Industrial and Commercial Bank of China (ICBC) 
announced it will acquire 20% of equity in Standard Bank of South 
Africa for US$5.6 billion.  ICBC will become the largest shareholder 
of Standard Bank which has a branch in Taiwan that was set up 20 
years ago.  The branch ranks 21st in terms of net worth among 32 
foreign banks in Taiwan. 
 
TAIPEI 00002430  003 OF 003 
 
 
 
Higher Criteria for Financial Holding Companies 
--------------------------------------------- -- 
¶10.  On October 12, 2007, Taiwan's Financial Supervisory Commission 
(FSC) amended the "Financial Holding Company Establishment 
Criteria."  According to the new criteria, the capital adequacy 
ratio for a FHC will remain unchanged at 100%.  The ratios for FHC 
subsidiaries, however, will substantially increase, up from 8% to 
10% for a bank, up from 150% to 200% for a securities firm, and up 
from 200% to 300% for an insurance company.  The new criteria call 
for the minimum capital to triple, from NT$20 billion to NT$60 
billion (US$1.8 billion).  The new minimum asset requirements will 
more than double, up from NT$300 billion to NT$750 billion (US$22.7 
billion).  The new criteria restrict FHCs from investing in 
non-financial sectors.  The FSC also does not permit an FHC from 
serving as a holding company of another FHC.  Apparently, the higher 
criteria are designed to force half of the smaller existent FHCs to 
merge. 
 
Labor participation rate highest in 10 years 
-------------------------------------------- 
¶11.  Taiwan's labor participation rate in the first eight months of 
this year averaged 58.24%, the highest for the ten-month period over 
the past 10 years.  The main reason is the increasing numbers of 
women entering the workforce as their level of education rises.  In 
1980, 26% of mothers with children under the age of 6 held 
employment.  In 2006, this figure more than doubled to 56%. 
Taiwan's employment population in August was 10,795,000, up 41,000 
persons over July or up 191,000 persons over a year ago. 
 
Hsinchu Science Park Sets Export Record 
--------------------------------------- 
¶12.  August exports of Hsinchu Science Park (HSP) manufacturers hit 
a new monthly high of NT$62.07 billion (US$1.9 billion), which is an 
increase of 24% compared to last year.  Integrated circuits (IC) and 
optoelectronics comprised over 87% of the August exports.  Exports 
from the HSP in the first eight months of 2007 increased 11% 
year-on-year to NT$410.87 billion (US$12.6 billion). 
Optoelectronics exports (mainly flat panels) shot up 83% to 
NT$143.25 billion (US$4.4 billion), while integrated circuits (IC) 
exports declined 7% to NT$208.42 billion (US$6.4 billion).  During 
the eight-month period, 76% of the HSP's exports went to Asian 
countries, 8.7% to Europe, 8.4% to North America, and 5.9% to 
Central America. 
 
Spansion Teams up with Taiwan companies 
--------------------------------------- 
¶13.  U.S.-based Spansion, the world's largest flash memory solutions 
provider, is expanding its technical and business relations with two 
Taiwan companies in a bid to take on the Greater China market. 
Spansion and Taiwan Semiconductor Manufacturing Company (TSMC) have 
been jointly developing and upgrading manufacturing process 
technologies.  Spansion recently placed larger orders for digital 
television chips with TSMC, which is also handling a third of 
Spansion's orders for mobile phone chips.  Spansion, which was 
originally a joint venture between AMD and Fujitsu, is also teaming 
up with Mediatek to provide design solutions for handsets, digital 
TVs and DVD players.  Meanwhile, Mediatek, having the backing of 
Spansion's complete support for flash memory platforms, will 
effectively consolidate its top position in the Mainland China 
handset chip market. 
 
YOUNG