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Reference ID	Created	Released	Classification	Origin
06TAIPEI2695	2006-08-09 08:55	2011-08-23 00:00	UNCLASSIFIED	American Institute Taiwan, Taipei

VZCZCXRO4935
RR RUEHGH
DE RUEHIN #2695 2210855
ZNR UUUUU ZZH
R 090855Z AUG 06
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 1518
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCPDOC/USDOC WASHDC
RUEHBK/AMEMBASSY BANGKOK 3374
RUEHBJ/AMEMBASSY BEIJING 5528
RUEHUL/AMEMBASSY SEOUL 8001
RUEHGP/AMEMBASSY SINGAPORE 6550
RUEHKO/AMEMBASSY TOKYO 7910
RUEHML/AMEMBASSY MANILA 9773
RUEHJA/AMEMBASSY JAKARTA 3905
RUEHKL/AMEMBASSY KUALA LUMPUR 3543
RUEHHI/AMEMBASSY HANOI 3108
RUEHBY/AMEMBASSY CANBERRA 4269
RUEHWL/AMEMBASSY WELLINGTON 1539
RUEHHK/AMCONSUL HONG KONG 6737
RUEHGH/AMCONSUL SHANGHAI 0304
RUEHGZ/AMCONSUL GUANGZHOU 9484

UNCLAS TAIPEI 002695 
 
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:  NTD Loans Considered Foreign Direct Investment 
 
 
SUMMARY 
------- 
 
¶1.  Taiwan monetary authorities recently began permitting secured NT 
dollar (NTD) bank loans to serve as foreign direct investment (FDI) 
in Taiwan as a way to absorb excess liquidity.  However, Taiwan's 
financial supervisory authorities are concerned that Taiwan 
companies may be vulnerable to hostile foreign acquisition funded 
through this channel.  END SUMMARY. 
 
Relaxation 
---------- 
 
¶2.  Taiwan's Foreign Investment Commission (FIC) announced on July 
28 it will expand the permissible sources of FDI to include secured 
NTD loans provided by Taiwan banks from foreign currency remitted 
into Taiwan.  However, foreign investment projects funded by local 
secured NTD loans are subject to strict requirements, including 
certification of the investment and operation plans, submission of a 
draft loan contract, and regular post-investment submission of 
certified financial statements.  The foreign investors must be 
multinational corporations or actually engaged in business 
activities. 
 
¶3.  "Paper companies" registered with such tax havens as Caiman and 
Virgin Islands may not enjoy the privilege.  In addition, the 
capital must come from banks.  Capital from other financial 
institutions, such as insurance firms, is not permitted. 
 
Industry and Management Technologies 
------------------------------------ 
 
¶4.  This new provision and the abundance of available NTD funds 
should attract foreign investors who will bring in industry and 
management technologies, according to an FIC division chief.  The 
FIC is currently reviewing several projects funded with capital from 
secured loans provided by local banks. 
 
To Address Excess Liquidity 
--------------------------- 
 
¶5.  An important reason for the new provision is that Taiwan's 
Central Bank of China (CBC) wants to absorb excess liquidity in the 
banking sector by allowing foreign investors to obtain capital 
needed for their FDI projects from the local banking sector.  A 
senior CBC official told AIT/T that the CBC originally suggested the 
relaxation.  According to the official, excess liquidity has 
contributed to the very narrow interest rate gaps between deposits 
and loans which, together with delinquent credit and cash card debt 
problems, are major factors behind 14 of 45 Taiwan banks reporting 
losses in the first half of 2006. 
 
¶6.  According to the FIC division chief, the Financial Supervisory 
Commission (FSC) opposed the CBC's suggestion during interagency 
discussions in late July.  The FSC is concerned that Taiwan 
companies, particularly banks and other financial institutions, may 
be vulnerable to hostile acquisitions if foreign investors can use 
local capital obtained from local banks. 
 
Young

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Viewing cable 06TAIPEI2695, NTD Loans Considered Foreign Direct Investment