VZCZCXRO7676
RR RUEHGH
DE RUEHIN #1469/01 1180750
ZNR UUUUU ZZH
R 280750Z APR 06
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 9924
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCPDOC/USDOC WASHDC
RUEHBK/AMEMBASSY BANGKOK 3252
RUEHBJ/AMEMBASSY BEIJING 5134
RUEHUL/AMEMBASSY SEOUL 7805
RUEHGP/AMEMBASSY SINGAPORE 6438
RUEHKO/AMEMBASSY TOKYO 7677
RUEHML/AMEMBASSY MANILA 9710
RUEHJA/AMEMBASSY JAKARTA 3849
RUEHKL/AMEMBASSY KUALA LUMPUR 3487
RUEHHI/AMEMBASSY HANOI 3063
RUEHBY/AMEMBASSY CANBERRA 4186
RUEHWL/AMEMBASSY WELLINGTON 1487
RUEHHK/AMCONSUL HONG KONG 6337
RUEHGH/AMCONSUL SHANGHAI 0092
RUEHGZ/AMCONSUL GUANGZHOU 9281

UNCLAS SECTION 01 OF 03 TAIPEI 001469 
 
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 April 2006 
 
 
¶1.  This cable summarizes selected recent economic events in Taiwan 
in April 2006: 
 
--Exports boost Q1 economic growth 
--Central Bank fights inflation 
--U.S. companies eye Taiwan lottery 
--Irony: PRC words and deeds 
--KMT-CCP meeting improves cross-Strait relations 
--WTO consultations with PRC 
--Card debt erodes bank profitability 
--COSMIC III launched 
--Alcatel WiMAX testing center 
--TFT-LCD Merger - AUO and Quanta Display 
--PRC Gravel Export Ban 
 
Export Expansion behind Taiwan's Economic Growth in Q1 
--------------------------------------------- --------- 
 
¶2.  Taiwan's economy performed well in Q1 of 2006 due to strong 
foreign demand for Taiwan-made electronic products.  Both official 
and private think tanks estimate real GDP growth rates for Q1 
exceeded five percent.  Export orders received in Q1 increased 21% 
from a year ago, contributing to a double-digit export growth and 
the second highest manufacturing growth of 8% in the past two years. 
 Growing foreign demand will continue to be a driving force behind 
Taiwan's economic growth for the rest of 2006, but the momentum may 
be partly offset by tighter money supply policy, reduction of loans 
to credit/cash card holders, and higher oil prices.  The Chunghua 
Institution for Economic Research recently lowered its estimate of 
Taiwan's 2006 real GDP growth from 4.2% to 3.8% and raised its 
estimate of inflation from 1.8% to 2.2%. 
 
Taiwan Central Bank Tightening Money Supply 
------------------------------------------- 
 
¶3.  Taiwan's Central Bank of China (CBC) has moved against growing 
inflationary pressure.  On March 31, it raised its benchmark 
interest rates by 0.125 percentage points to a 54-month high of 
2.375% and has absorbed excess liquidity by issuing NT$220 billion 
(US$6.8 billion) of negotiable certificates of deposit (NCDs). 
Consequently, the M1b measure of money supply growth in March 
declined to 4.3%, the lowest in 54 months. 
 
Taiwan Lottery 
-------------- 
 
¶4.  On April 17, AIT ECON and COMM called on Ministry of Finance 
National Treasury Agency Director to highlight U.S. companies' 
continuing interest in the contract for the hardware and software 
for the Taiwan lottery.  The U.S. company G-Tech has held the 
contract for Taiwan's lottery since an official large-scale lottery 
began in 2002 and is one of two U.S. companies bidding on the $70 
million contract for the 2007-2014 time period.  Taiwan's official 
lottery takes in $2.5-3 billion per year.  Approximately 13% of 
revenue generated is used to cover operating expenses and most of 
the rest is used to assist local governments. 
 
Irony 
----- 
 
¶5.  On April 17, while PRC officials were greeting the Taiwan 
delegation led by Lien Chan and calling for more interaction between 
the PRC and Taiwan, in Taipei Tokyo Mayor Shintaro Ishihara was 
 
TAIPEI 00001469  002 OF 003 
 
 
complaining to the media about Beijing's boycott of the Asian 
Network of Major Cities 21 (ANMC21) annual convention because Taipei 
hosted the event this year.  The 2006 annual convention of ANMC21 
issued a "Taipei Declaration" on April 13 with mayors and 
representatives from Tokyo, Singapore, Seoul, New Delhi, Bangkok, 
Jakarta, Hanoi, Manila, Kuala Lumpur and Taipei pledging to promote 
information technology to enhance urban functions and civil 
services, and to keep working together to tackle challenges 
including environmental issues. 
 
KMT-CCP Economic Forum - Taiwan Government Moves First 
--------------------------------------------- --------- 
 
¶6.  Mainland Affairs Council Chairman Joseph Wu announced April 12 
that Taiwan might unilaterally lift restrictions on PRC tourist 
travel to Taiwan if the two sides are unable to successfully 
conclude cross-Strait industry-led consultations within six monts. 
The Chen Administration may have made the announcement in part to 
preempt an expected PRC announcement of further liberalization of 
cross-Strait tourism at the KMT-Chinese Communist Party economic 
forum in Beijing.  Wu also announced that if the two sides cannot 
fully conclude consultations on routine passenger and cargo charter 
flights, they might implement interim steps such as additional 
holiday charter flights, humanitarian charter flights or special 
purpose cargo charter flights. 
 
¶7.  The two-day cross-Strait economic forum between the KMT and 
Chinese Communist Party concluded in Beijing on April 15.  About 50 
senior executives from leading Taiwan companies, whose combined 
production accounts for over 50% of the island's GDP, attended the 
meeting.  At the closing ceremonies, the PRC announced 15 measures 
to relax cross-Strait economic restrictions.  The PRC released new 
regulations permitting PRC tourists to visit Taiwan and expanded the 
number of cities where Taiwan travelers can obtain travel documents 
on arrival.  It approved seven additional categories of fruit, 
eleven categories of vegetables and eight categories of seafood for 
duty-free import from Taiwan.  It also announced the establishment 
of special investment zones for Taiwan farmers and a distribution 
center for Taiwan agricultural products. 
 
Import Relief 
------------- 
 
¶8.  On April 25, Taiwan requested consultations with the PRC in 
Geneva under the WTO framework on towel imports. Taiwan will adopt 
the defensive measures allowed by WTO rules if the PRC fails to 
reach agreement with Taiwan.  On March 17, Taiwan's International 
Trade Commission (ITC) found that towels imported from China have 
damaged Taiwan's towel industry, and that the prices have 
constituted "dumping."  On April 14, the ITC proposed the government 
raise import tariffs from 10.5% to 66% on towels coming from China. 
 
Card Debt Impacts Taiwan Banks 
------------------------------ 
 
¶9.  The majority of delinquent card debtors started rescheduling 
negotiations with banks prior to the deadline of April 10 set by 
Taiwan's bank regulator.  Meanwhile, card issuers have stepped up 
their efforts to write off delinquent card debts to avoid 
card-related NPL ratios exceeding the 3%-cap.  Bad debt written off 
in March 2006 increased to a record high of NT$21.7 billion (US$669 
million), three times the amount of six months ago.  Consequently, 
Taiwan banks' pretax profits in Q1 of 2006 dropped 42% from a year 
 
TAIPEI 00001469  003 OF 003 
 
 
ago to NT$27 billion (US$830 million). 
 
COSMIC III to Improve Taiwan's Weather Forecast 
--------------------------------------------- ---- 
 
¶10.  On April 15, COSMIC III, Taiwan's first weather satellite, was 
successfully launched from Vandenberg Air Force Base, California. 
The satellite was assembled by Taiwan's National Space Program 
Office, and its construction and launch cost totaled NT$4.3 billion. 
 According to experts, it will increase the accuracy of Taiwan's 
weather forecast by 15%. 
 
Alcatel to Set up WiMAX Testing Center in Taiwan 
--------------------------------------------- --- 
 
¶11.  French telecom giant Alcatel plans to open a fourth-generation 
telecom WiMAX testing center in Taiwan with an investment exceeding 
NT$100 million (US$3.1 billion).  WiMAX has been considered a 
possible successor to current wireless telecom technologies. 
Alcatel will work with Taiwan company ZyXEL to use the center on 
development of wireless broadband services, and will strengthen 
cooperation with Taiwan's internet protocol telecom companies. 
Alcatel has also worked with Taiwan's Hon Hai Precision Industry and 
ZyXEL on ADSL (the current wireless telecom technology) services, 
and is one of the major ADSL suppliers for Chunghwa Telecom.  In 
addition, Alcatel has opened other development centers in Taiwan, 
including a third-generation telecom Internet research center called 
the 3G Reality Centre, and an information and telecommunications R&D 
center. 
 
TFT-LCD Merger - AUO and Quanta Display 
--------------------------------------- 
 
¶12.  On April 7, AU Optronics (AUO), Taiwan's largest maker of thin 
film transistor-liquid crystal display (TFT-LCD) flat panel 
displays, announced that it would buy smaller Taiwan rival Quanta 
Display through a stock swap.  The deal gives the combined firm a 17 
percent market share but still leaves it the world's third largest 
TFT-LCD producers after Korea's Samsung and LG Philips. 
 
Construction Will Suffer from PRC Gravel Export Ban 
--------------------------------------------- ------ 
 
¶13.  The PRC announced on April 17 that it would ban all exports of 
gravel on May 1, 2006.  The ban will hurt Taiwan's construction 
sector, which relies heavily on PRC gravel.  Over 20 percent of 
Taiwan's gravel comes from the PRC, and Taiwan buys 60 percent of 
the PRC's gravel exports.  The Ministry of Economic Affairs plans to 
ease Taiwan's gravel mining regulations and assist firms to search 
for new sources overseas, including the Philippines and Vietnam. 
 
YOUNG