VZCZCXRO7983
RR RUEHGH
DE RUEHIN #3156/01 2551038
ZNR UUUUU ZZH
R 121038Z SEP 06
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 2088
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCPDOC/USDOC WASHDC
RUEHBK/AMEMBASSY BANGKOK 3406
RUEHBJ/AMEMBASSY BEIJING 5645
RUEHUL/AMEMBASSY SEOUL 8080
RUEHGP/AMEMBASSY SINGAPORE 6599
RUEHKO/AMEMBASSY TOKYO 8014
RUEHML/AMEMBASSY MANILA 9799
RUEHJA/AMEMBASSY JAKARTA 3921
RUEHKL/AMEMBASSY KUALA LUMPUR 3560
RUEHHI/AMEMBASSY HANOI 3127
RUEHBY/AMEMBASSY CANBERRA 4309
RUEHWL/AMEMBASSY WELLINGTON 1555
RUEHHK/AMCONSUL HONG KONG 6856
RUEHGH/AMCONSUL SHANGHAI 0368
RUEHGZ/AMCONSUL GUANGZHOU 9547

UNCLAS SECTION 01 OF 03 TAIPEI 003156 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USTR 
STATE FOR EAP/ TC, EAP/EP 
USTR FOR STRATFORD, ALTBACH 
 
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: TAIWAN INVESTMENT IN CHINA GROWS 
 
 
Summary 
------- 
 
¶1. (SBU) Taiwan's approved investment in China in the first half of 
2006 shot up 35.2 percent from the corresponding period in 2005, 
totaling USD 3.56 billion and reversing a one-year decline.  Much of 
the investment comes from firms expanding existing China operations. 
 This strong growth suggests Taiwan efforts to encourage firms to 
diversify overseas investment are not succeeding.  End summary. 
 
Taiwan's first half investment in China surges 
--------------------------------------------- - 
 
¶2. (U) Taiwan's approved investment in China in the first half of 
2006 grew 35.2 percent from the corresponding period of 2005, 
totaling US$3.56 billion, according to Taiwan's Ministry of Economic 
Affairs Investment Commission (IC).  The strong growth reversed a 
13.5-percent annual decline in 2005 and put total investment for 
2006 on track to beat 2004's record of US$6.94 billion.  Despite 
efforts by authorities to encourage businesses to diversify their 
investment, the PRC continued to be the predominant destination for 
Taiwan foreign investment.  It accounted for 66.9 percent of 
Taiwan's total outward foreign direct investment (FDI), down 
slightly from 71.1 percent for all of 2005. 
 
                     Approved Amount  Percent of 
Period        Cases   (US$ billion)    Total FDI 
------        -----  ---------------  ---------- 
2006 Jan-Jun   519        3.56           66.9% 
2005 Jan-Jun   651        2.63           68.7% 
2005 Total   1,297        6.01           71.1% 
 
East and South China Still Dominate 
----------------------------------- 
 
¶3. (U) The Yangtze and Pearl River Deltas continue to be the main 
destinations for Taiwan investment in the PRC.  Jiangsu Province 
took the lead to with over 38 percent of Taiwan's investment in the 
Mainland, followed by Guangdong, Shanghai City, Zhejiang, and 
Fujian.  Together the five top areas accounted for 91 percent of 
Taiwan's China investment, the same proportion they held in 2005. 
The following chart shows the number of approved cases for each 
province with the total amount of approved investment: 
 
--                  Approved Amount  Percent of 
Location     Cases   (US$ million)      Total 
--------     -----  ---------------  ---------- 
Jiangsu       144        1,365          38.4% 
Guangdong     124          717          20.2% 
Shanghai       81          534          15.0% 
Zhejiang       27          389          11.0% 
Fujian         73          233           6.6% 
Others         70          317           8.9% 
PRC Total     519        3,556         100.0% 
 
Electronics Continue to Lead 
---------------------------- 
 
¶4. (U) Electronic goods, components and machinery accounted for more 
than 48 percent of Taiwan's investment in the Mainland during the 
first half of the year.  Investment in computers, communications and 
audio/video equipment manufacturing was the largest single category 
with approved investment valued at US$797 million, a 67.7 percent 
increase over the previous year.  The top ten categories were all in 
 
TAIPEI 00003156  002 OF 003 
 
 
manufacturing industries, accounting for 80 percent of total 
investment.  The following chart shows Taiwan investment data for 
the top ten industrial categories: 
 
--                              Amount    Percent 
Industry               Cases  (US$ mil.)  of Total 
--------               -----  ----------  -------- 
Computers, Telecom. 
A/V equipment            53       797       22.4% 
Electronic components    23       568       16.0% 
Electrical machinery     75       371       10.4% 
Precision, optical 
--medical equipment      23       219        6.2% 
Chemicals                27       182        5.2% 
Non-metallic minerals    10       178        5.0% 
Metals and metal goods   34       161        4.6% 
Plastic products         26       141        4.0% 
Machinery                40       125        3.5% 
Textiles                 24       115        3.3% 
Others                  184       696       19.6% 
Total                   519     3,556      100.0% 
 
 
Expanded Investments Play Important Role 
---------------------------------------- 
 
¶5. (U) The strong growth in PRC investment appears to be due in 
large part to expansion of previous investment projects, rather than 
new projects by first-time Taiwan investors in the PRC.  Many of 
these investments were financed by revenue generated in the PRC. 
Ten projects by nine large Taiwan firms with major existing 
investments in the PRC accounted for about 12 percent of total 
investment.  These are Honhai Electronics (US$100 million), Chi-Mei 
(two projects of US$60 million and US$30 million), Asustek Computer 
Inc. (US$50 million), Promate Electronics (US$50 million), and 
Gigabyte Technology (US$50 million), Formosa Chemicals and Fibre 
Corp. (US$40 million), Topply (US$20 million), and UniPresident 
Group (US$40 million). 
 
PRC Data - Smaller Decline than 2005 
------------------------------------ 
 
¶5. (U) PRC data on Taiwan investment showed a different picture. 
PRC Ministry of Foreign Commerce data showed that Taiwan realized 
investment (dollars actually spent versus approved or contracted 
investment) actually fell 12.2 percent in the first half of 2006 
from the same period last year.  This decline was smaller than the 
31.1 percent decline for 2005.  The total value of realized 
investment in the first six months of 2006 was US$1.03 billion. 
However, the PRC data for contracted Taiwan investment showed a 15.6 
percent increase to US$5.52 billion. 
 
Comment - Diversification Efforts Unsuccessful 
--------------------------------------------- - 
 
¶6. (SBU) Except for the decline in realized Taiwan investment in 
China shown in the PRC data, the rest of the story is one of 
continued strong interest by Taiwan enterprises in expanding 
existing operations in China.  Energy shortages, rising land and 
labor costs, macro-economic controls and uncertainty about the 
Renminbi's future exchange rate appear to be doing little to slow 
Taiwan investment in the Mainland.  Taiwan authorities continuing 
efforts to encourage firms to diversify overseas investment also 
appear to be making little headway. 
 
TAIPEI 00003156  003 OF 003 
 
 
 
YOUNG