VZCZCXRO7492
RR RUEHGH
DE RUEHIN #3945/01 3280646
ZNR UUUUU ZZH
R 240646Z NOV 06
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 3163
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCPDOC/USDOC WASHDC
RUEHBK/AMEMBASSY BANGKOK 3486
RUEHBJ/AMEMBASSY BEIJING 5981
RUEHUL/AMEMBASSY SEOUL 8272
RUEHGP/AMEMBASSY SINGAPORE 6693
RUEHKO/AMEMBASSY TOKYO 8240
RUEHML/AMEMBASSY MANILA 9846
RUEHJA/AMEMBASSY JAKARTA 3946
RUEHKL/AMEMBASSY KUALA LUMPUR 3595
RUEHHI/AMEMBASSY HANOI 3161
RUEHBY/AMEMBASSY CANBERRA 4376
RUEHWL/AMEMBASSY WELLINGTON 1616
RUEHHK/AMCONSUL HONG KONG 7201
RUEHGH/AMCONSUL SHANGHAI 0562
RUEHGZ/AMCONSUL GUANGZHOU 9744

UNCLAS SECTION 01 OF 02 TAIPEI 003945 
 
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 EIND ECON PINR TW
SUBJECT:  Foreign Investment in Taiwan Surges 291 Percent 
REF: Taipei 2695 
 
¶1.  SUMMARY.  Inbound foreign direct investment (FDI) has increased 
by 291 percent so far this year.  Major factors behind the sharp 
increase include Philips Taiwan transferring local holdings to 
Philips Holland; several large merger and acquisition (M&A) 
projects; and a new regulation which allows foreign investors to use 
local bank loans to finance their Taiwan projects.  Low funding 
costs will continue to attract foreign investors in the foreseeable 
future.  END SUMMARY. 
 
Approved FDI Surges 
------------------- 
 
¶2.  Approved FDI in the first ten months this year nearly tripled 
over the same period last year to US$11.23 billion, a 290.97 percent 
year-on-year increase.  One factor was Philips Electronics 
Industries (Taiwan) transferring in January 2006 its holdings in 
Taiwan Semiconductor Manufacturing Company (TSMC), the world largest 
semiconductor foundry, to Royal Philips Electronics of the 
Netherlands.  This deal totaled US$3.8 billion which accounted for 
33.5% of total FDI approved in the first ten months this year.  The 
equity transfer is defined as FDI for balance of payments (BOP) 
accounting purposes even though it does not represent a flow of new 
money into Taiwan. 
 
¶3.  New projects also made a significant contribution to FDI growth. 
 Approved FDI without the Philips ownership transfer still 
registered a growth of 137.6% in January and 160% over the first ten 
months of the year.  By quarter, the growth rates were 266.4% in Q1 
(excluding Philips transferring transaction), 129.7% in Q2, 66.6% in 
Q3, and 460.5% in October. 
 
M&A 
--- 
 
¶4.  M&A projects were also a major contributor to the growth in 
approved FDI so far this year, especially in the financial sector. 
These M&A projects included GE Consumer Finance's acquisition of 
Cosmos Bank, New Bridge's and Nomura's acquisition of equity in 
Taishin Financial Holdings, Carlyle Group's acquisition of Eastern 
Technology and Eastern TV, SIPF B.V. trading in stocks in Jih Sun 
Financial Holdings, and Standard Chartered Bank's merger with 
Hsinchu International Bank. 
 
FDI Concentrated on Four Industries 
----------------------------------- 
 
¶5.  Approved FDI so far this year were concentrated in electronics, 
banking, science and technology services, and trade.  These four 
categories accounted for nearly 90% of total approved FDI. 
 
Local Bank Loans as Sources of FDI 
---------------------------------- 
 
¶6.  Earlier this year, Taiwan started permitting foreign investors 
to use NTD loans obtained from local banks to serve as a source of 
FDI.  Since then, many foreign investors (particularly private 
equity funds) have obtained NTD and foreign currency loans from 
local banks to fund their FDI projects in Taiwan.  This type of 
transaction will be recorded in the BOP books as credit to the FDI 
account and debit to a nonresident's liability to a local bank. 
 
COMMENT 
------- 
 
¶7.  FDI into Taiwan will continue to increase in the foreseeable 
future due to low cost convenient funding and attractive Taiwan 
companies.  Interest rates for NTD bank loans are about 2%, the 
 
TAIPEI 00003945  002 OF 002 
 
 
second lowest in East Asia after Japan.  As reported reftel, 
Taiwan's banking sector has significant excess liquidity, making it 
very easy for foreign investors to obtain loans from local banks. 
 
YOUNG