VZCZCXRO0883
RR RUEHGH
DE RUEHIN #3986/01 3330446
ZNR UUUUU ZZH
R 290446Z NOV 06
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 3221
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCPDOC/USDOC WASHDC
RUEHBK/AMEMBASSY BANGKOK 3492
RUEHBJ/AMEMBASSY BEIJING 6003
RUEHUL/AMEMBASSY SEOUL 8286
RUEHGP/AMEMBASSY SINGAPORE 6699
RUEHKO/AMEMBASSY TOKYO 8254
RUEHML/AMEMBASSY MANILA 9852
RUEHJA/AMEMBASSY JAKARTA 3952
RUEHKL/AMEMBASSY KUALA LUMPUR 3601
RUEHHI/AMEMBASSY HANOI 3167
RUEHBY/AMEMBASSY CANBERRA 4380
RUEHWL/AMEMBASSY WELLINGTON 1628
RUEHHK/AMCONSUL HONG KONG 7227
RUEHGH/AMCONSUL SHANGHAI 0578
RUEHGZ/AMCONSUL GUANGZHOU 9761

UNCLAS SECTION 01 OF 03 TAIPEI 003986 
 
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: Taiwan's Latest Economic Vision 
 
 
SUMMARY 
------- 
 
¶1.  (U)  Taiwan recently announced a new ten-year economic plan to 
double per capita GDP.  In the first three-year phase, Taiwan will 
encourage investment by reducing land costs and ensuring sufficient 
labor supply.  The first phase will require investment of NT$3,287.2 
billion (US$99.6 billion at exchange rate of NT$33 per US Dollar), 
of which 93.2% will come from the private sector and 6.8% from the 
public sector.  END SUMMARY. 
 
Long-term Goals 
--------------- 
 
¶2.  The Executive Yuan (EY) recently approved a set of long-term 
economic goals: doubling Taiwan's per capita GDP from an estimated 
US$15,690 in 2006 to US$30,000 in 2015, increasing annual average 
economic growth to 5% (higher than the 4.5% average of the past ten 
years), and keeping unemployment below 4% and inflation below 2%. 
 
Services Expand, Agriculture & Industry Shrink 
--------------------------------------------- - 
 
¶3.  The Ministry of Economic Affairs' (MOEA's) vision projects the 
service sector will grow by an average annual rate of 5.5%, industry 
at a rate of 4.3%, and agriculture at a rate of 1% per year.  Output 
of the service sector will increase from 73.3% of GDP in 2006 to 
76.2% in 2015.  Agriculture's share of GDP will decline from the 
current 1.7% to 1.2%, while industry's share shrinks from 25% to 
22.7%. 
 
¶4.  MOEA identifies four key industries that will emerge in the next 
ten years: wireless broad-band, digital home, health care, and green 
industries (including renewable energy solar photovoltaic, clean 
production, and energy-saving ones).  The production of these four 
industries in Taiwan will increase from an estimated US$40 billion 
in 2009 to US$157 billion in 2015.  This would represent a doubling 
of these industries' share of GDP. 
 
Reduce Land Costs 
----------------- 
 
¶5.  MOEA calls for measures to lower land costs and ensure 
sufficient labor to sustain Taiwan's continued industrial 
development.  Stage one includes a three-year program (2007-2009) to 
lease 100 hectares of state-owned land to investors rent-free for 
the first four years and 50% off for the next six years.  MOEA will 
also extend a current land rent program from December 2006 to 
December 2008.  Under a six-year program, MOEA will subsidize 
investors in leasing industrial park lands rent-free for the first 
two years, discounted 40% for the next two years, and 20% for the 
last two years.  In addition to other low-cost land programs, MOEA 
will help unregistered factories legalize their land usage. 
 
Sufficient Labor Supply 
----------------------- 
 
¶6.  MOEA and the Council of Labor Affairs (CLA) will work together 
to help factories improve their working environment, safety and 
sanitation.  The authorities will permit three-shift manufacturing 
plants to use foreign labor working in the night shift.  Taiwan will 
review policies to increase the supply of foreign workers and extend 
the period of their stay in Taiwan. 
 
Funding Assistance 
------------------ 
 
¶7.  MOEA will increase credit guarantees for small and medium 
 
TAIPEI 00003986  002 OF 003 
 
 
enterprises (SMEs, which account for 95% of the number of registered 
manufacturing firms in Taiwan).  Under the new plan, guaranteed 
loans to SMEs over the next three years will total NT$1.6 trillion 
(US$48.5 billion). 
 
Required Investment 
------------------- 
 
¶8.  Investment required in the first three-year phase of the plan 
will total NT$3,287 billion (US$99.6 billion).  The private sector 
will contribute 93.2% of the total funding or NT$3,064.7 billion 
(US$92.9 billion).  The remaining 6.8% or NT$222.56 billion (US$6.7 
billion will come from the public sector, including NT$146.6 billion 
(US$4.44 billion) from the central authorities and NT$75.9 billion 
(US$2.3 billion) from state-owned enterprises.  MOEA will help 
channel investments into the designated industries. 
 
Targeted Industries -- Service Sector 
------------------------------------- 
 
¶9.  MOEA expects to increase output of the service sector from 
NT$8.2 trillion (US$248.5 billion) in 2005 to NT$10.3 trillion 
(US$312.1 billion) in 2009.  During this period, employment in the 
sector will increase from 5,793,000 to 6,327,000, and labor 
productivity will rise from NT$1.41 million (US$42,424) per person 
to NT$1.63 million (US$49,394).  The plan identifies seven top 
services with great potential in Taiwan, each projected to have 
annual production value exceeding NT$300 billion (US$9.1 billion) in 
2009: 
 
--Financial Services (Banking, Securities and Insurance): Annual 
production will increase from NT$1.2 trillion (US$36.4 billion) in 
2005 to NT$1.5 trillion (US$45.4 billion) in 2009. 
 
--Logistics and Distribution: Annual sales will increase from NT$2.2 
trillion (US$66.7 billion) in 2005 to NT$2.6 trillion (US$78.8 
billion) in 2009. 
 
--Medical Care: Annual sales will grow from NT$696.2 billion (US$21 
billion) in 2005 to NT$772.4 billion (US$23.4 billion) in 2009. 
 
--Digital Content: Annual sales will surge from NT$290.2 billion 
(US$8.8 billion) in 2005 to NT$515 billion (US$15.6 billion) in 
¶2009. 
 
--Tourism: Annual sales revenue will increase from NT$356.1 billion 
(US$10.8 billion) in 2005 to NT$448.3 billion (US$13.6 billion) in 
¶2009. 
 
--Telecommunications: Annual sales will grow from NT$377 billion 
(US$11.4 billion) in 2005 to NT$430 billion (US$13 billion) in 
¶2009. 
 
--Information Services:  Annual sales revenue will grow from 
NT$211.8 billion (US$6.4 billion) in 2005 to NT$318 billion (US$9.6 
billion) in 2009. 
 
Targeted Industries -- Manufacturing Sector 
------------------------------------------- 
 
¶10.  Manufacturing production is projected to increase from NT$11.7 
trillion (US$354.5 billion) in 2005 to NT$14 trillion (US$424 
billion) in 2009.  During this period labor productivity per person 
of the sector will increase from NT$980,000 (US$29,697) per person 
to NT$1.24 million (US$37,576).  Semiconductor and LCD-panel 
production will remain the backbone of the manufacturing sector over 
the next three years.  Five industries whose annual output will 
exceed NT$1 trillion (US$30.3 billion) in 2009 are: 
 
TAIPEI 00003986  003 OF 003 
 
 
 
--Semiconductor: Annual production will nearly double from NT$1.1 
trillion (US$33.3 billion) in 2005 to NT$2 trillion (US$60.6 
billion) in 2009.  There will be 18 12-inch silicon wafer fabs, 
including eight new 12-inch wafer fabs. 
 
--LCD Display Panels: Annual production will surge from NT$927 
billion (US$28 billion) in 2005 to NT$1.6 trillion (US$48.5 billion) 
in 2009.  There will be 17 LCD-panel plants, including four plants 
beyond 7th generation technology. 
 
--Petrochemicals: Annual production will grow from NT$1.2 trillion 
(US$36.4 billion) in 2005 to NT$1.5 trillion (US$45.5 billion) in 
¶2009.  Taiwan's world ranking in ethylene output will advance from 
12th place to eighth. 
 
--Iron and Steel: Annual production will grow from NT$909 billion 
(US$27.5 billion) in 2005 to NT$1.1 trillion (US$33.3 billion) in 
¶2009. 
 
--Machinery: Annual production will grow from NT$640 billion 
(US$19.4 billion) in 2005 to NT$1.1 trillion (US$33.3 billion) in 
¶2009.  Taiwan's world ranking in machine tool output will advance 
from fifth to fourth. 
 
COMMENT 
------- 
 
¶11.  The MOEA industrial development plan entails dramatic 
industrial transformation.  MOEA believes this is needed to ensure 
Taiwan's continued economic competitiveness amid international 
integration trends.  Taiwan has to follow the footsteps of other 
developed economies by expanding its service sector while losing 
agriculture and manufacturing. 
 
¶12.  Capital to fund these development plans should not be any 
problem to Taiwan which is currently experiencing excess liquidity. 
In addition, with little restriction on capital flows, additional 
foreign funds may be attracted to Taiwan by these development 
plans. 
 
YOUNG