VZCZCXRO1882
RR RUEHGH
DE RUEHIN #3044/01 2490351
ZNR UUUUU ZZH
R 060351Z SEP 06
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 1944
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCPDOC/USDOC WASHDC
RUEHBK/AMEMBASSY BANGKOK 3392
RUEHBJ/AMEMBASSY BEIJING 5619
RUEHUL/AMEMBASSY SEOUL 8066
RUEHGP/AMEMBASSY SINGAPORE 6590
RUEHKO/AMEMBASSY TOKYO 7994
RUEHML/AMEMBASSY MANILA 9789
RUEHJA/AMEMBASSY JAKARTA 3913
RUEHKL/AMEMBASSY KUALA LUMPUR 3552
RUEHHI/AMEMBASSY HANOI 3119
RUEHBY/AMEMBASSY CANBERRA 4299
RUEHWL/AMEMBASSY WELLINGTON 1547
RUEHHK/AMCONSUL HONG KONG 6826
RUEHGH/AMCONSUL SHANGHAI 0352
RUEHGZ/AMCONSUL GUANGZHOU 9530

UNCLAS SECTION 01 OF 02 TAIPEI 003044 
 
SIPDIS 
 
SIPDIS 
 
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 August 2006 
 
 
¶1.  This cable summarizes selected recent economic events in Taiwan 
in August 2006: 
 
--Taiwan firms in China boost economy; 
--419 Microsoft Managers from PRC Attend Taipei Meeting; 
--Cross-Strait tourism ready; 
--Evergreen rolls out modified 747; 
--TSMC sues PRC-based SMIC again; 
--Foreign investment exempt from AMT; 
--NTD loans designated as FDI. 
 
Industrial Relocation to China Benefits Taiwan Economy 
--------------------------------------------- -------- 
 
¶2.  Taiwan's four major think tanks all project economic growth will 
remain around 4% in 2006 and 2007.  Taiwan's economy grew 4% in 
¶2005.  Export expansion, fueled by production facilities in China, 
will serve as a major driving force behind Taiwan's economic growth 
in 2006 and 2007.  Taiwan exports to China have grown faster than 
exports to other markets and have allowed Taiwan to achieve huge 
trade surpluses and foreign exchange reserves.  Export expansion and 
development of the service sector will keep unemployment in 2006 and 
2007 below four percent (except for a seasonal upward fluctuation in 
summer time).  Private consumption and private investment, some 75% 
of GDP, will gradually recover from the adverse effects of 
credit/cash card debt and excess inventory problems. 
 
419 Microsoft Managers from PRC Attend Taipei Meeting 
--------------------------------------------- -------- 
 
¶3.  Taiwan authorities approved a group of 419 China-based Microsoft 
managers to attend a 3-day meeting in Taipei beginning August 22. 
The visit reflects efforts to relax restrictions on business trips 
by white-collar workers from China, one of the 516 recommendations 
of the Economic Sustainable Development Conference (ESDC) held in 
late July.  Taiwan's Ministry of Economic Affairs (MOEA) is planning 
further liberalizations which it expects will facilitate development 
of regional operations, international logistics, international trade 
fairs, and related activities in Taiwan.  At present, foreign and 
local companies have set up 305 regional operations headquarters, 89 
R&D centers, 12 international warehouses, and nine international 
logistics centers in Taiwan. 
 
Cross-Strait Tourist Exchanges Are Ready 
---------------------------------------- 
 
¶4.  To facilitate tourists from China, Taiwan set up the Taiwan 
Cross-Strait Tourist Traveling Association (TCTTA) just ten days 
after the PRC inaugurated the Cross-Strait Travel Exchange 
Association (CTEA) on August 17.  Taiwan's Tourist Bureau (TB) will 
contribute 50% of the NT$1 million (US$30,770) initial funding.  TB 
Director General (DG) Hsu Wen-sheng was elected as TCTTA Chairman, 
and Deputy DG Lai Seh-jen was appointed as Executive Secretary.  Lai 
will lead Taiwan's delegation in cross-Strait tourist exchange 
consultations expected to start soon.  Once China permits its 
nationals to travel to Taiwan, Taiwan monetary authorities will 
allow currency exchange between the NTD and the RMB at designated 
places near harbors, airports, and sightseeing spots. 
 
Boeing & Evergreen Roll out Modified 747 Freighter 
--------------------------------------------- ----- 
 
¶5.  Under a Boeing contract, Evergreen Aviation Technologies 
Corporation (EGAT) rolled out the first of three 747-400 Large Cargo 
Freighters (LCF) on August 28.  The LCF is a 747 specially modified 
by EGAT to dramatically expand the cargo space to carry the fuselage 
and wings of Boeing's 787 Dreamliner for final assembly.  Boeing and 
 
TAIPEI 00003044  002 OF 002 
 
 
EGAT are both pleased by progress so far.  The U.S. Federal Aviation 
Administration has worked closely with the firms to accelerate the 
certification process for this unusual aircraft.  The LCF should 
begin operations in January 2007.  They will be operated exclusively 
for Boeing's Dreamliner project by Evergreen International Airlines, 
Evergreen Group's Oregon-based cargo carrier. 
 
TSMC Sues SMIC Again 
 
SIPDIS 
-------------------- 
 
¶6.  Taiwan Semiconductor Manufacturing Company (TSMC), the world's 
largest contract chip maker, announced on August 28 that it was 
again filing suit against Semiconductor Manufacturing International 
Corporation (SMIC) of China in a California court.  SMIC is TSMC's 
main rival in the PRC and was founded by Richard Chang, a former 
TSMC employee.  TSMC believes SMIC violated a 2005 settlement and 
 
SIPDIS 
continues to use TSMC trade secrets.  TSMC had originally filed suit 
against SMIC in 2003 for patent violations.  They reached a 
settlement in 2005 under which SMIC agreed to pay TSMC US$175 
million. 
 
Taiwan Exempts Foreign Portfolio Investment from 10% AMT 
--------------------------------------------- -------- 
 
¶7.  In mid-August, Taiwan's Ministry of Finance (MOF) issued an 
administrative order to exempt foreign institutional investors 
(FIIs) from the 10% alternative minimum tax (AMT) if the investment 
capital comes from offshore and is not the FII's own funds.  The MOF 
order will be retroactive to January 1, 2006 when the AMT was 
implemented.  An MOF official estimated that the order will exempt 
99% of foreign portfolio investment in Taiwan from the AMT. 
However, FIIs with fixed offices or agents in Taiwan must pay the 
AMT for securities trading done for its own account. 
 
NTD Loans Considered Foreign Direct Investment 
--------------------------------------------- - 
 
¶8.  U.S. investment companies could benefit from Taiwan's decision 
to permit secured NT dollar (NTD) bank loans to be designated as 
foreign direct investment (FDI).  Taiwan's Foreign Investment 
Commission (FIC) has expanded the permissible sources of FDI to 
include secured NTD loans provided by Taiwan banks from foreign 
currency remitted into Taiwan.  The foreign investors must be 
multinational corporations or actually engaged in business 
activities.  "Paper companies" registered with such tax havens as 
the British Virgin Islands may not enjoy the privilege.  However, 
the Financial Supervisory Commission is concerned that Taiwan 
companies, particularly banks and other financial institutions, may 
be vulnerable to hostile takeovers if foreign investors can use 
local capital obtained from local banks.  The move is intended to 
help absorb excess liquidity in Taiwan's economy. 
 
YOUNG