VZCZCXYZ0003
RR RUEHWEB

DE RUEHIN #0647/01 0602247
ZNR UUUUU ZZH
R 012247Z MAR 06
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 8801
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCPDOC/USDOC WASHDC
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UNCLAS AIT TAIPEI 000647 
 
SIPDIS 
 
SIPDIS 
 
STATE PLEASE PASS AIT/W AND USTR 
 
STATE FOR EAP/RSP/TC, EAP/EP 
 
USTR FOR WINTER AND WINELAND 
 
USDOC FOR 4420/USFCS/OCEA/EAP/LDROKER 
USDOC FOR 3132/USFCS/OIO/EAP/ADAVENPORT 
TREASURY FOR OASIA/LMOGHTADER 
TREASURY PLEASE PASS TO OCC/AMCMAHON 
TREASURY ALSO PASS TO FEDERAL RESERVE/BOARD OF 
GOVERNORS, AND SAN FRANCISCO FRB/TERESA CURRAN 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ECON PINR TW
SUBJECT:  Economic Briefing for February 2006 
 
REF: (A) TAIPEI 514 
 
¶1.  This cable summarizes selected recent economic events in 
Taiwan in February 2006: 
 
--Economic growth and expansion; 
--Cross-Strait links are expanding; 
--Listed companies repatriate earnings; 
--Foreign investors acquire financial institutions; 
--Duties assigned to ministers without portfolio; 
--Taiwan promoting economic relations with India; 
--Taiwan attracts foreign portfolio investment; 
--Five-year alternative energy program; 
--National Communication Commission set up. 
 
Economic Growth Driven by Export Expansion 
------------------------------------------ 
 
¶2.  Reftel predicted that the export boom beginning in Q4 of 
2005 would cause Taiwan authorities to adjust upward 
Taiwan's official estimates of growth in 2005 and 2006.  On 
February 23, Taiwan's Statistical Bureau (SB) raised its 
estimate of 2005 economic growth to 4.09% from 3.8% 
estimated in November 2005, and raised its estimate of 2006 
growth from 4.08% to 4.25%.  The estimate of 2006 growth 
would be even higher than 4.25% except for banks tightening 
issuance and usage of credit cards and cash cards at the 
request of Taiwan's legislature to resolve social problems 
caused by debt delinquency.  Per capita GNP in 2006 will 
increase from US$15,676 in 2005 to US$16,208, comparable to 
levels prevailing in some OECD nations, such as Greece.  In 
January 2006, seasonally adjusted export growth rose to 21% 
up steadily from a single-digit rate in early 2005 and 14.5% 
in Q4.  Adjusted industrial growth in January 2006 increased 
to 20.5%, also steadily up to 20% from merely 1% in Q1 and 
9.5% in Q4 of 2005.  Unemployment in January 2006 declined 
to 3.89% in December from a two-year peak of 4.36% in August 
¶2005.  (Unemployment figures for January 2006 were not 
available for this report.)  Meanwhile, the inflation rate 
dropped from 3.6% in August 2005 to 2.65% in January 2006. 
 
Cross-Strait Mini-links Expanding 
--------------------------------- 
 
¶3.  Mini-links operations (i.e., ferryboats from Taiwan's 
Kinmen Island to the PRC port of Xiamen) were not affected 
by Taiwan - Xiamen charter flights during the Lunar New Year 
holiday (January 20 - February 13), according to the Kinmen 
County Harbor Administration.  A total of 49,000 passengers 
traveled on Kinmen - Xiamen ferryboats during the 2006 
holiday, up 31 percent from the same holiday period in 2005. 
Two liberalization measures contributed to the growth.  On 
January 1, 2006, the PRC began permitting Fujian residents 
one-day tours in Kinmen.  Also in January 2006, Taiwan 
authorities started allowing people registered as Kinmen 
residents before 2001 (even if not residing there now) and 
residents' relatives to travel to Xiamen by ferryboat.  Mini- 
link ferryboat transportation in 2005 grew 41% to 4,276 
voyages, and ferryboat passengers increased nearly 30% to 
277,000 persons. 
 
Listed Companies Repatriate Earnings from China 
--------------------------------------------- -- 
 
 
¶4.  Over 80% of the 1,100 companies listed on Taiwan's stock 
market have invested in China.  According to official Taiwan 
statistics, their cumulative investment there through 
December 2005 totaled NT$486.2 billion (or US$15.1 billion 
at the exchange rate of NT$32 per USD).  This accounts for 
one-third of Taiwan's total registered investment in China. 
The cumulative earnings these companies repatriated back to 
Taiwan totaled NT$38.7 billion (or US$1.21 billion) 
equivalent to 7.9% of their total investment in China. 
Electronics firms have been major investors in China with 
cumulative investment there totaling NT$222.5 billion 
(US$6.95 billion), about 45.8% of Taiwan's total registered 
investment in China, accounting for three-quarters of total 
earnings repatriated to Taiwan.  On the contrary, listed 
companies producing wires & cables, glass and paper, and 
department stores and chain stores have not reported any 
repatriated earnings. 
 
Foreign Firms Participate in Financial Consolidation 
--------------------------------------------- ------- 
 
¶5.  A growing number of foreign investors are buying into 
Taiwan's financial institutions.  Two foreign investors will 
obtain 27% of equity in Taishin Financial Holding through 
private placement.  Newbridge Asia IV.L.P, a U. S. buyout 
company, will acquire 22.3% of Taishin equity for NT$27 
billion (or US$0.84 billion).  Nomura Securities Company of 
Japan will obtain 6.55% equity in Taishin for NT$4 billion. 
In September 2005, Taishin won a bid for controlling 
interest in the state-owned Changhwa Commercial Bank. 
Recently, U.S. company AIG decided to acquire 100% equity in 
Taiwan's Central Insurance (non-life) for NT$6 billion.  The 
merger will make AIG (Taiwan) the third largest non-life 
insurance firm in Taiwan.  Foreign purchases of local 
financial institutions included Citibank's 15% stake in 
Fubon, Prudential Life's 5% in E. Sun Bank, New York Life's 
5% in Bank of Overseas Chinese, and GE Capital's 24.9% in 
Cosmos Bank (for NT$9 billion or US$0.28 billion). 
 
Duty Assignment for Ministers without Portfolio 
--------------------------------------------- -- 
 
¶6. Taiwan's cabinet was reshuffled in late January.  Vice 
Premier Tsai Ing-wen has been assigned to chair the EY 
Economic and Finance Committee, which coordinates government 
policy on economic and financial issues.  Duties assigned to 
ministers without portfolio handling economic and financial 
issues are as follows: 
--Fu Li-yeh: social welfare; 
--Hsu Chi-hsiung: cross-Strait, foreign affairs, and 
national defense; 
--Lin Feng-ching: science and technology; 
--Hu Sheng-cheng: matters related to the Ministry of 
Finance, the Financial Supervisory Commission, and National 
Development Fund; 
--Ho Mei-yueh: affairs related to the Ministry of Economic 
Affairs, Council for Economic Planning and Development 
Council, Council of Agriculture, and Public Construction 
Commission, Fair Trade Commission, and Consumer Protection 
Commission. 
 
Closer Economic Relations with India 
------------------------------------ 
 
¶7. Taiwan is (again) promoting a program to diversify 
Taiwan's investment away from China to other developing 
economies, this time, India.  On February 11, the Taiwan- 
India Association (TIA) was established in Taipei.  DPP 
Party Chairman Yu Shyi-kun was elected Chairman, and 
Minister without portfolio Ho Mei-yueh was appointed 
Secretary General.  Economic Minister Hwang Ing-san and 
 
SIPDIS 
National Science Council Chairman Chen Chien-jen are TIA 
board members.  Taiwan's state-owned Chinese Petroleum 
Corporation plans to build a petroleum refinery and a 
gasoline station network in India.  The Taiwan government 
encourages local computer firms to invest in India.  India 
is Taiwan's 26th largest trading partner. Two-way trade 
between these two nations in 2005 totaled US$1.9 billion. 
Taiwan's investment in India as of January 2006 totaled only 
US$14 million.  Four similar associations have been set up 
to promote economic relations with Mongolia, Russia, Tibet, 
and five nations in Central Asia. 
 
Large Foreign Portfolio Investment Flows to Taiwan 
--------------------------------------------- ----- 
 
¶8.  A large amount of foreign portfolio investment flowed 
into Asian nations since the second half of 2005.  Among 
Asian nations (excluding Japan), Taiwan attracted the 
largest amount of foreign portfolio investment funds.  As of 
December 2005, cumulative net foreign portfolio investment 
in Taiwan totaled US$8.3 billion, compared to the US$3.26 
billion in China, US$590 million in South Korea, US$530 
million in Singapore, and US$200 million in Hong Kong.  The 
amount in Japan was US$14.68 billion.  Foreign portfolio 
investors hold 32.41% equity in Taiwan's listed companies as 
of February 6, already exceeding the 28% target set for 2008 
by the Council for Economic Planning and Development as part 
of plans to internationalize Taiwan's economy. 
 
Taiwan Promotes Alternative Energies 
------------------------------------ 
 
¶9.  Higher petroleum costs have prompted Taiwan to adopt a 
very ambitious, perhaps unrealistic, five-year alternative 
energy development program.  Taiwan's Ministry of Economic 
Affairs (MOEA) will require that diesel oil should contain 
at least 5% bio-diesel made from recycled edible oil.  Wind 
power generation in 2010 should increase to 4.2% of total 
power generation from 0.02% in 2004, and the share for 
geothermal power generation should increase from nothing to 
0.1% during the same period.  These targets may be 
realistic, but they are certainly ambitious.  The planned 
installed power generation capacities for five alternative 
energies are as follows: 
--Water: from 1.91 million kilo watts (MKW) to 2.168 MKW; 
--Wind: from 0.009 MKW to 2.159 MKW; 
--Solar: 0.00059 MKW to 0.021 MKW; 
--Thermal: 0 to 0.005 MKW; 
--Bio-energy: 4.673 MKW to 7.41 MKW. 
 
National Communication Commission (NCC) 
--------------------------------------- 
 
 
¶9.  On February 17, Taiwan's Executive Yuan (EY) appointed 
12 NCC members (three of the 12 NCC appointees subsequently 
refused to serve to protest political intervention).  On 
February 22, the nine remaining appointees assumed their 
duties as NCC commissioners and elected Su Yung-chin (KMT) 
as NCC Chairman.  According to the NCC Organic Law, Premier 
Su Tseng-chang is required to confirm the chairman elected 
and his deputies within seven days after election.  The NCC 
was established as an independent body to handle 
broadcasting and communications issues.  However, the EY has 
asked the Council of Grand Justices to review whether NCC 
organization violates Taiwan's Constitution. 
 
KEEGAN