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DE RUEHIN #2574/01 2130847
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RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCPDOC/USDOC WASHDC
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RUEHBJ/AMEMBASSY BEIJING 5502
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RUEHBY/AMEMBASSY CANBERRA 4262
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RUEHGZ/AMCONSUL GUANGZHOU 9467

UNCLAS SECTION 01 OF 03 TAIPEI 002574 
 
SIPDIS 
 
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STATE PLEASE PASS USTR 
 
STATE FOR EAP/RSP/TC, EAP/EP 
 
USTR FOR ALTBACH 
 
USDOC FOR 3132/USFCS/OIO/EAP/WZARIT 
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:  Taipei Economic Brief for July 
 
 
¶1.  This cable summarizes selected recent economic events in Taiwan 
in July 2006: 
 
--Economic Conference offers 516 recommendations; 
--Economy expected to slow in H2; 
--Taiwan to streamline insurance policy review; 
--Restriction on foreign professionals relaxed; 
--TSMC vaults to 4th largest semiconductor firm; 
--South Korea may surpass Taiwan in IT production; 
--MOF completes investigation on PRC towel dumping; 
--First Taiwan hospital in Mainland China; 
--Taiwan firms are PRC's major FX earners. 
 
SEDC Ended with 516 Recommendations 
----------------------------------- 
 
¶2.  Over 100 economic, financial, business, and political 
representatives attended the Sustainable Economic Development 
Conference (SEDC) organized by the Executive Yuan (EY) on July 27 
and 28.  The meeting ended with 516 recommendations including a 
consensus on greenhouse gas reduction, the need for legislation of 
an energy tax, agreement to promote a national pension system, and 
endorsement of a stock market international board.  Premier Su 
Tseng-chang promised that the EY will work out concrete 
 
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implementation plans for these recommendations within one month. 
The opposition People First Party and Kuomintang (KMT) Party 
boycotted the meeting.  The Taiwan Solidarity Union (TSU) Party 
withdrew from the conference after relaxation of the 40% of capital 
limit on investment in Mainland China was added as a 
recommendation. 
 
Taiwan's Economy Doing Well in H1 but Slows in H2 
--------------------------------------------- ---- 
 
¶3.  Exports boosted Taiwan's economy in the first half (H1) of 2006, 
while sluggish domestic demand was a negative factor.  Higher 
interest rates in the United States have not dampened demand for 
products supplied by Taiwan firms.  Export orders received by Taiwan 
grew 15% in Q2 of 2005 and nearly 22% in Q2 of 2006.  Export growth 
accelerated from 5.8% to 14%.  However, higher petroleum costs and 
domestic factors dampened private consumption to barely 2% in H1. 
Worse, private investment in H1 of 2006 declined 0.5% from a year 
ago. 
 
¶4.  Three major think tanks (Taiwan Institute of Economic Research 
(TIER), Chunghua Institution for Economic Research (CIER), and 
Academia Sinica) all predict Taiwan's economy will slow in H2 of 
2006 to achieve around 4% growth for the year.  Higher interest 
rates, higher petroleum prices, and an increased tension in the 
Middle East will weaken foreign demand and reduce Taiwan's export 
growth to a single digit rate in H2 of this year.  Sluggish domestic 
demand is expected to continue in H2 as consumer confidence has been 
hurt by attempts to recall President Chen Shui-bian in June, 
scandals surrounding Taiwan's First Family, and increased tension in 
the Middle East.  TIER and Academia Sinica predicted quarterly 
economic growth will decline from 4.9% in Q1 to 3.1% in Q4. 
 
Taiwan to Streamline Insurance Policy Review 
-------------------------------------------- 
 
¶5.  On July 11, Taiwan's Financial Supervisory Commission Insurance 
Bureau (IB) announced it will streamline insurance policy reviews 
beginning September 1 in response to recommendations from AmCham and 
local insurance companies.  Insurance firms will not be required to 
 
TAIPEI 00002574  002 OF 003 
 
 
obtain prior permission for most new insurance products.  These 
measures will reduce the number of insurance policies requiring 
prior permission by 75% and cut the review time by more than half. 
In addition, the IB will provide six months of "innovation 
protection" that requires imitations of another company's new types 
of insurance products to seek prior IB permission.  These changes 
should increase the efficiency and profitability of insurance 
companies, but require companies to exercise strict internal 
controls. 
 
Relaxed Restrictions on Foreign Professionals 
--------------------------------------------- 
 
¶6.  On July 26, the Financial Supervisory Commission announced it 
will allow certified public accountant (CPA) offices to hire foreign 
students as paid short-term interns.  The Ministry of Justice is 
revising rules to allow law firms to set up similar programs which 
may be adopted in August.  The Council for Economic Planning and 
Development is also coordinating with the Ministry of the Interior 
and the Public Construction Commission to permit foreign students as 
paid short-term interns in architecture and engineering firms.  In 
May, Taiwan began to allow banks, insurance companies, securities 
firms, and large enterprises to set up intern programs for foreign 
students. 
 
TSMC Vaults to 4th Largest Semiconductor Firm 
 
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--------------------------------------------- 
 
¶7.  Taiwan Semiconductor Manufacturing Company (TSMC) was the 
world's fourth largest semiconductor firm in the first half of 2006 
by total revenue according to new rankings released by IC Insights 
Inc., a market research firm.  TSMC rose from the eighth position in 
¶2005.  It now trails only Intel, Samsung, and Texas Instruments. 
TSMC is the world's largest contract chip manufacturer.  It 
 
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pioneered the "foundry-fabless" model where "foundries" manufacture 
chips under contract for "fabless" integrated circuit design houses. 
 Qualcomm's entry into the top 15 gave further evidence of the 
success of the foundry-fabless model. 
 
South Korea's IT Industry to Surpass Taiwan's? 
--------------------------------------------- - 
 
¶8.  The Market Intelligence Center (MIC) of the Institute for 
Information Industry (III) recently predicted that in 2010, South 
Korea may replace Taiwan as the third largest supplier of 
information and telecommunications (IT) products in the world, after 
the United States and Japan.  MIC estimates the production value of 
South Korea's IT industry in 2010 will total USD 294.7 billion, 
higher than Taiwan's USD 283.1 billion.  Chairman Chen Ching-wen of 
Topology Research Institute, who used to be MIC Director, indicated 
that there are many Taiwan IT firms too small to be competitive. 
According to Chen, Taiwan authorities have spread resources into too 
many different industries which can not all compete in international 
markets.  Both Chen and President Lee Yuan-tseh of the Academia 
Sinica have suggested Taiwan authorities concentrate efforts and 
resources on a few projects with the greatest potential. 
 
MOF Proposes Anti-dumping Taxes on PRC-made Towels 
--------------------------------------------- ----- 
 
¶9.  On July 24, based on its investigation in China and responses to 
questionnaires by China-based towel manufacturers, Taiwan's Ministry 
of Finance (MOF) found that PRC-made towels have been dumped in 
Taiwan at below market prices.  The MOF has come up with dumping 
 
TAIPEI 00002574  003 OF 003 
 
 
margins for individual towel manufacturers in China, i.e., 88.5% for 
Shanming Enterprise, 86.6% for Twin-Lantern Home Textile, and 204.1% 
for all other towel exporters to Taiwan.  The MOF will submit its 
investigation report and recommendations to the Ministry of Economic 
Affairs (MOEA) on August 3.  The MOEA is required by Taiwan laws to 
make a final determination whether the PRC's dumping has injured 
Taiwan's towel industry within 40 days after it received the MOF's 
investigation report. 
 
The First Taiwan-built Hospital in China 
---------------------------------------- 
 
¶10.  Taiwan investors have started investing in medical institutions 
in China.  The first hospital built by a Taiwan company recently 
began operation.  The success of the project lay in its agreement to 
a joint venture with local interests that effectively removed 
opposition from local medical health institutions.  To win 
confidence, the Taiwan company obtained insurance from the province 
and city.  Germany's Siemens helped plan the medical instrument 
system of the hospital.  Since Beijing announced policies to 
encourage Taiwan investment in China early this year, Taiwan's 
medical industry has aggressively explored business opportunities in 
Mainland China.  Taiwan company Lien Shin is building a 600-bed 
hospital in Shanghai which is scheduled to start operation in 2007. 
Taiwan company Chang Keng is constructing a 2000-bed hospital in 
Xiamen which will also go into operation next year. 
 
Taiwan Firm Top Foreign Exchange Earner in China 
--------------------------------------------- -- 
 
¶11.  The PRC's Ministry of Commerce has ranked Hon Fu Jin Precision, 
a subsidiary Taiwan's Hon Hai Precision, as China's largest foreign 
exchange earner in 2005.  Hon Fu Jin reported USD 14.47 billion of 
export sales, surpassing such multinationals as Motorola, Nokia, and 
Samsung.  In fact, four of the PRC's top 10 foreign trade companies 
in 2005 were from Taiwan.  In terms of two-way trade (exports plus 
imports), the PRC's state-owned China Petroleum and Chemical 
Corporation ranked top with USD 34.3 billion.  Hon Fu Jin ranked 
second with USD 27.17 billion, followed by Taiwan's Quanta 
(Shanghai) in third place with USD 16.77 billion and Taiwan's 
Asustek Computer (Suzhou) in sixth place.  The number of 
Taiwan-invested enterprises in China has already reached 70,000. 
Among them, 37 infotech companies were listed among China's top 200 
exporters in 2005, with export sales equal to 9.4% of China's total 
exports. 
 
YOUNG