VZCZCXRO7259
RR RUEHGH
DE RUEHIN #2467/01 2020905
ZNR UUUUU ZZH
R 210905Z JUL 06
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 1202
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCPDOC/USDOC WASHDC
RUEHBK/AMEMBASSY BANGKOK 3336
RUEHBJ/AMEMBASSY BEIJING 5444
RUEHUL/AMEMBASSY SEOUL 7949
RUEHGP/AMEMBASSY SINGAPORE 6515
RUEHKO/AMEMBASSY TOKYO 7845
RUEHML/AMEMBASSY MANILA 9761
RUEHJA/AMEMBASSY JAKARTA 3888
RUEHKL/AMEMBASSY KUALA LUMPUR 3529
RUEHHI/AMEMBASSY HANOI 3099
RUEHBY/AMEMBASSY CANBERRA 4249
RUEHWL/AMEMBASSY WELLINGTON 1530
RUEHHK/AMCONSUL HONG KONG 6649
RUEHGH/AMCONSUL SHANGHAI 0248
RUEHGZ/AMCONSUL GUANGZHOU 9428

UNCLAS SECTION 01 OF 02 TAIPEI 002467 
 
SIPDIS 
 
SIPDIS 
 
STATE PLEASE PASS AIT/W AND USTR 
STATE FOR EAP/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:  Vietnam: Taiwan's 2nd Largest Export Base 
 
REF: HANOI 01824 
 
SUMMARY 
------- 
 
¶1.  Vietnam has become an important export base for Taiwan companies 
including a growing number of manufacturers of labor-intensive 
industries that have relocated from China.  Taiwan has become the 
Vietnam's largest source of foreign direct investment and the 
largest source of its trade deficit.  Taiwan firms have become 
Vietnam's major exporters and foreign exchange earners.  END 
SUMMARY. 
 
Mission Organized by Opposition Legislator 
------------------------------------------ 
 
¶2.  A Taiwan trade mission organized by Legislator Christina Liu 
(PFP) visited Vietnam May 18 - 21.  In addition to business leaders, 
the mission included 14 legislators, including seven from the ruling 
DPP Party.  According to Legislator Liu, the mission was warmly 
received by Vietnam officials. 
 
Taiwan Firm First to List in Vietnam 
------------------------------------ 
 
¶3.  Although the PFP that she represents in the Legislative Yuan 
(LY) has been a major advocate of Taiwan investment in China and 
direct cross-Strait navigation, Legislator Liu has urged Taiwan 
business firms to switch their attention from the United States and 
the PRC to Vietnam.  She has publicly reminded business groups that 
the share price of Taiwan's Tai Ya Electrical Wire and Cable has 
surged over 70% since the company became the first foreign firm to 
list on Vietnam's stock market in March 2006. 
 
Investment in Vietnam Is Insignificant to Taiwan 
--------------------------------------------- --- 
 
¶4.  According to Taiwan's Foreign Investment Commission, Taiwan 
firms' cumulative investment in Vietnam by the end of 2005 reached 
USD 1.2 billion, however, this is only 1.3% of Taiwan's total 
foreign investment, much less than the 51.5% of foreign investment 
sent to China, 18.4% sent to the tax havens of the Caribbean, and 
9.2% sent to the United States. 
 
But Significant to Vietnam 
-------------------------- 
 
¶5.  In 2005, Taiwan replaced Singapore as Vietnam's largest source 
of foreign investment, with cumulative direct investment from Taiwan 
totaling USD 7.9 billion, according to Vietnam's official 
statistics.  Taiwan investment is estimated at over USD 10 billion 
if funds going through the Cayman and Virgin Islands are included. 
(Note: The difference between Vietnam's official figure of USD 7.9 
billion and Taiwan's number of USD 1.2 billion is because many 
Taiwan investors fail to register with Taiwan authorities.  End 
Note.) 
 
Bilateral Trade Favors Taiwan 
----------------------------- 
 
¶6.  Taiwan enjoyed a trade surplus with Vietnam in 2005 of USD 3.4 
billion, 21% of Taiwan's total trade surplus and 73% of Vietnam's 
total trade deficit, although exports to Vietnam constituted only 
two percent of Taiwan's total exports.  Imports from Vietnam 
accounted for only 0.4% of Taiwan's total imports. 
 
 
TAIPEI 00002467  002 OF 002 
 
 
¶7.  Taiwan is Vietnam's fifth largest trading partner, third largest 
source of imports, and ninth largest export market.  Vietnam's 
imports from Taiwan in 2005 totaled USD 4.3 billion equivalent to 
12% of Vietnam's total imports. 
 
Accommodating Plants Struggling with Higher Costs in PRC 
--------------------------------------------- -------- 
 
¶8.  Taiwan began in 1991 to build production bases in Vietnam where 
labor and land costs as well as environmental requirements are lower 
than in China.  Relocating to Vietnam has permitted Taiwan firms to 
regain competitive advantages through tax and other incentives no 
longer available in China.  Vietnam has granted Taiwan firms capital 
remittance privileges that were never available in China, according 
to Legislator Christina Liu. 
 
Vietnam's Foreign Exchange Earners 
---------------------------------- 
 
¶9.  Most Taiwan manufacturing in Vietnam is export-oriented 
textiles, plastics, footwear, furniture, paper, cement, motorcycles, 
and bicycles.  Taiwan firms have advantages in capital, technology, 
and management know-how, but many of them still rely heavily on OEM 
(original equipment manufacturing) arrangements under which they 
rely on famous brand companies for marketing.  The production inputs 
come mainly from Taiwan and China.  The finished products go to 
markets in the United States, EU nations, and Japan. 
 
¶10.  Three major Taiwan footwear suppliers for such famous brands as 
NIKE and ADIDAS have relocated production facilities from other 
ASEAN nations and China to Vietnam.  Several Taiwan bicycle 
companies have moved assembly lines to Vietnam to avoid European 
anti-dumping duties against China. 
 
¶11.  Uni-President, one of Taiwan's largest animal feed makers and 
chain-store operators, has constructed animal feed plants in Vietnam 
which are critical for developing a livestock industry there.  San 
Yang, the top motorcycle maker in Taiwan, dominates the motorbike 
market in Vietnam.  Formosa Plastic, one of the top ten business 
conglomerates in Taiwan, has become the largest single foreign 
investor in Vietnam and an important supplier of plastic and 
petrochemical inputs required by textile, apparel, and footwear 
makers.  Formosa Plastic now operates one power plant and is 
building several others to meet growing power demands due to 
industrial expansion in Vietnam. 
 
Taiwan Banks and Insurance Firms in Vietnam 
------------------------------------------- 
 
¶12.  To service Taiwan businesses and the about 30,000 Taiwan 
business people in Vietnam, Taiwan banks have set up 18 offices in 
Vietnam.  With total assets of USD 800 million, Taiwan's banks in 
Vietnam reported after-tax profits of USD 1.3 billion in 2005. 
 
¶13.  In its WTO accession agreement with Taiwan signed in September 
2005, Vietnam opened its insurance markets.  Since then, two life 
and two non-life insurance companies from Taiwan have set up 
branches and brokerage firms there. 
 
Young