VZCZCXRO7120
RR RUEHGH
DE RUEHIN #3737/01 3060733
ZNR UUUUU ZZH
R 020733Z NOV 06
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 2874
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCPDOC/USDOC WASHDC
RUEHBK/AMEMBASSY BANGKOK 3454
RUEHBJ/AMEMBASSY BEIJING 5873
RUEHUL/AMEMBASSY SEOUL 8210
RUEHGP/AMEMBASSY SINGAPORE 6664
RUEHKO/AMEMBASSY TOKYO 8172
RUEHML/AMEMBASSY MANILA 9830
RUEHJA/AMEMBASSY JAKARTA 3936
RUEHKL/AMEMBASSY KUALA LUMPUR 3583
RUEHHI/AMEMBASSY HANOI 3153
RUEHBY/AMEMBASSY CANBERRA 4359
RUEHWL/AMEMBASSY WELLINGTON 1585
RUEHHK/AMCONSUL HONG KONG 7093
RUEHGH/AMCONSUL SHANGHAI 0505
RUEHGZ/AMCONSUL GUANGZHOU 9684

UNCLAS SECTION 01 OF 03 TAIPEI 003737 
 
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 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 October 2006 
 
 
¶1.  This cable summarizes selected October 2006 economic events in 
Taiwan: 
 
--Economic Performance 
--Taiwan 4th in US Patents 
--Bank Acquisition through Open Market Trading 
--Legislature Reviewing 2007 Budget 
--Draft CO2 Emissions Law 
--R&D Subsidies for SME 
--Fourth Nuclear Power Plant 
--CME and TAIFEX Sign MOU 
 
Economy Performs Well 
--------------------- 
 
¶2.  Taiwan's economy has performed better than expected in the first 
nine months this year.  Y-o-y export growth accelerated from 12% in 
Q1 to 18.6% in Q3, highest in the past two years.  Import growth 
also increased from 9% in Q1 to 15% in Q3, highest in the past 21 
months.  Both export growth and import growth in Q3 were higher than 
the 7-10% previously estimated by Taiwan think tanks.  Export 
shipments in the next three to six months are expected to grow 
substantially as orders received in Q3 increased at a double-digit 
rate, following 21%-growth in the first half of this year.  The 
manufacturing sector's facility utilization rate in Q3 exceeded the 
2005 annual average of 80% and its Q3 profit margin surpassed 5% of 
sales.  The Chunghua Institution for Economic Research (CIER) 
predicted that private investment will grow at 2.9% in Q3 and 4.3% 
in Q4, highest in the past two years.  Taiwan authorities have 
brought delinquent credit/cash card debt problems under control 
through a rescheduling mechanism.  Private consumption bottomed-out 
in Q3 and is expected to grow 2.6% in Q4, highest in the past 18 
months.  Prices were stable in the first nine months; the consumer 
price index inched up only 0.8%.  Prices should remain stable in Q4 
as international oil prices are declining in the second half of this 
year.  Unemployment in September declined from 4.09% in August to 
3.96%, lowest for the past six months. 
 
Taiwan 4th in US Patents 
------------------------ 
 
¶3.  Taiwan received 5,991 patents from the U.S. Patent and Trademark 
Office last year, ranking fourth in the world for the seventh 
consecutive year.  Taiwan's ranking moved up to second in terms of 
patents approved for every one million people of population.  Taiwan 
did especially well in semiconductor, LCD, and information 
technologies.  The number of patents received in semiconductor 
technology totaled 820, ranking third, behind only the United States 
and Japan.  Taiwan's world ranking was third in information storage, 
and fifth in such areas as LCD and related technologies, computer 
hardware and software technology, and computer peripherals. 
 
Bank Acquisition through Stock Market Trading 
--------------------------------------------- - 
 
¶4.  In late September 2006, London-based Standard Chartered Bank 
(SCB) obtained permission from Taiwan's the Financial Supervisory 
Commission (FSC) to acquire Taiwan's Hsinchu International Bank 
(HIB) through open trading in Taiwan's stock market in October.  By 
the end of October, SCB had obtained nearly total ownership in HIB 
and plans to de-list it from Taiwan's stock market.  HIB ranks 27th 
among Taiwan banks in terms of net worth and has 82 local branches. 
In 2006 in addition to SCB's acquisition of HIB, 12 major foreign 
investors have acquired significant percentages of equity in six 
Taiwan banking institutions through private placement. 
 
Legislature Reviewing 2007 Central Budget 
----------------------------------------- 
 
TAIPEI 00003737  002 OF 003 
 
 
 
¶5.  On October 2, the Legislative Yuan (LY) began reviewing Taiwan's 
proposed 2007 central budget.  Expenditures for 2007 will increase 
6% from 2006 to NT$1,663.8 billion (US$50.4 billion at an exchange 
rate of NT$33 per US$), and the estimated 2007 budget deficit will 
decline 19% from 2006 to NT$152 billion (US$4.6 billion).  However, 
outstanding central public debt will increase from NT$3,555.7 
billion (US$107.7 billion) in 2005 to NT$4,040.7 billion (US$122.4 
billion) in 2007.  The outstanding debt as a share of GNP in 2007 
will increase from 33.1% in 2005 to an estimated 35.2%, still below 
the statutory limit of 40% and less than the 52.7% in the United 
Kingdom, 64.1% in the United States, 66.9% in Germany, and 163.4% in 
Japan.  While education, science and culture continue to occupy the 
largest share of the proposed budget, defense spending will grow 30% 
to NT$311.5 billion (US$9.4 billion), mainly on procurements from 
the United States. 
 
Draft Law on CO2 Emissions Quotas 
--------------------------------- 
 
¶6.  On September 20, the Executive Yuan (EY) approved a draft bill 
entitled the Greenhouse Gas Reduction Act, which will impose carbon 
dioxide (CO2) emission reduction quotas on manufacturing firms in 
Taiwan.  With the bill, Taiwan joins Switzerland and Japan as the 
only economies mandating greenhouse gas reductions and an emissions 
quota trading and accounting system.  Companies which voluntarily 
reduce emissions before passage of the law can credit their 
reduction quotas for trading or for use in future investment 
projects.  Taiwan's Environmental Protection Agency (EPA) will set a 
national quota on greenhouse gas emissions, while other agencies set 
quotas for industries that they govern and regulate.  The bill will 
be implemented in stages, starting in 2008 with a registration and 
verification system for CO2 emissions, followed by determination of 
emissions quotas and a quota trading system. 
 
R&D Subsidies for Small & Medium Enterprises (SMEs) 
--------------------------------------------- ------ 
 
¶7.  Under the 2006 Small Business Innovation Research Program, the 
Ministry of Economic Affairs Department of Industrial Technology 
(DOIT) will provide 31 SMEs with R&D subsidies of at least NT$100 
million (US$3 million) for each recipient.  The 31 SMEs are 
principally from electronics, information and telecommunications 
(IT), machinery, chemicals, biotechnology, and innovation services. 
SMEs comprise 97.25% of Taiwan's manufacturing sector, but often 
face a shortage of funding and access to technologies. 
 
Fourth Nuclear Power Plant (FNPP) 
--------------------------------- 
 
¶8.  The state-owned Taiwan Power Company (TPC) denied a recent press 
report that the FNPP will not start operation in July 2009, as 
scheduled, because Carrier Engineering failed to honor a bank check 
in September.  TPC is working with the lending bank in an attempt to 
help Carrier resolve its financial problems, and the scheduled date 
of completion will remain unchanged. 
 
CME and TAIFEX Sign MOU on Information Sharing 
--------------------------------------------- - 
 
¶9.  On October 27, the Chicago Mercantile Exchange (CME) and the 
Taiwan Futures Exchange (TAIFEX) signed a memorandum of 
understanding (MOU) on information sharing.  CME is the world's 
largest and most diverse financial exchange, while TAIFEX is a 
rising derivatives exchange in the Asia-Pacific Region and the only 
derivatives exchange in Taiwan.  Taiwan has signed similar MOUs with 
eight other foreign futures exchanges, including with the Osaka 
Securities Exchange and the Central Mercantile Exchange of Japan 
 
TAIPEI 00003737  003 OF 003 
 
 
signed in May 2006. 
 
WANG