VZCZCXRO1041
RR RUEHGH
DE RUEHIN #3993/01 3330844
ZNR UUUUU ZZH
R 290844Z NOV 06
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 3232
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCPDOC/USDOC WASHDC
RUEHBK/AMEMBASSY BANGKOK 3495
RUEHBJ/AMEMBASSY BEIJING 6008
RUEHUL/AMEMBASSY SEOUL 8289
RUEHGP/AMEMBASSY SINGAPORE 6702
RUEHKO/AMEMBASSY TOKYO 8257
RUEHML/AMEMBASSY MANILA 9855
RUEHJA/AMEMBASSY JAKARTA 3955
RUEHKL/AMEMBASSY KUALA LUMPUR 3604
RUEHHI/AMEMBASSY HANOI 3170
RUEHBY/AMEMBASSY CANBERRA 4383
RUEHWL/AMEMBASSY WELLINGTON 1631
RUEHHK/AMCONSUL HONG KONG 7232
RUEHGH/AMCONSUL SHANGHAI 0581
RUEHGZ/AMCONSUL GUANGZHOU 9764

UNCLAS SECTION 01 OF 03 TAIPEI 003993 
 
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:  Trade Performance Better Than Expected 
 
 
SUMMARY 
------- 
 
¶1. Taiwan's trade in Q3 this year was better than predicted, with 
both exports and imports growing faster than previously estimated by 
think tanks.  Higher export growth and a larger trade surplus should 
lead to upward adjustment of Taiwan's 2006 economic growth. 
High-tech industries, the backbone of Taiwan's manufacturing sector, 
enjoyed brisk export sales which, in turn, have contributed to 
growth in capital goods imports and double-digit growth in imports 
of other production inputs in Q3. 
 
¶2.  Strong U.S. demand for Taiwan's electronic goods has driven up 
growth in exports to the United States.  With regional economic 
integration, Greater China (including Hong Kong) took 40% of 
Taiwan's exports and supplied 13% of Taiwan's imports, only after 
Japan's share of 23%.  Regional economic integration has also 
contributed to double-digit growth in exports to and imports from 
ASEAN whose importance in trade to Taiwan has surpassed that of the 
European Union.  Higher oil prices prompted imports from three oil 
exporting countries to post 26-76% growth.  END SUMMARY. 
 
Export Growth and Trade Surplus Higher Than Expected 
--------------------------------------------- ------- 
 
¶3.  Based on Taiwan customs clearance statistics, exports in the 
first nine months this year grew 15% from a year ago to US$165 
billion while imports rose 11.4% to US$151.4 billion, leaving a 
trade surplus of US$13.6 billion, 76% above the same period of last 
year.  The y-o-y export growth accelerated from 12% in Q1 to 18.6% 
in Q3, a new high in the past two years.  Import growth also 
increased from 9% in Q1 to 15% in Q3, the highest in the past 21 
months. 
 
¶4.  Taiwan's exports in Q3 this year totaled US$59 billion, up 18.6% 
from a year ago and higher than the 12.3% previously estimated by 
Taiwan's Statistical Bureau (SB) and the 7-8% predicted by two 
private think tanks.  Meanwhile, Taiwan's imports in Q3 were US$53.2 
billion, registering a growth of 15%, higher than the 9-10% 
estimated by the SB and other think tanks.  Taiwan's trade surplus 
in Q3 more than tripled a year ago to US$5.8 billion which was 25% 
higher than the US$4.7 billion estimated by the SB. 
 
Composition of Exports 
---------------------- 
 
¶5.  Exports were mainly such electronic, electrical, and optical 
products as chips, wafers, integrated circuits, printed circuit 
boards, liquid crystal displays, color monitors, and mobile phones. 
These high-tech products and other capital-intensive goods accounted 
for over 80% of Taiwan's total exports in the first nine months this 
year.  During the period, high tech products enjoyed exceptional 
export growth, including 44% for optical devices, 28% for 
electronics, and 18% for electrical products.  Higher international 
prices of iron, steel and other metals since the middle of this year 
have also driven up growth in Taiwan's exports of basic metal 
products from 1.6% in the first half of this year to 34% in Q3. 
 
Composition of Imports 
---------------------- 
 
¶6.  Taiwan's imports were principally production inputs.  Energy, 
materials, and semi-finished goods constituted three-quarters of 
Taiwan's total imports.  This category's import growth has 
accelerated from 16% in Q1 to 18% in Q3.  Higher international oil 
prices have driven up Taiwan's crude oil imports which registered a 
y-o-y growth of 40% in the first nine months this year.  During the 
 
TAIPEI 00003993  002 OF 003 
 
 
nine-month period, crude oil accounted for 12% of Taiwan's total 
imports, up from 7.5% two years ago.  Consequently, Taiwan's imports 
from oil producing countries posted very high growth, including 76% 
from United Arab Emirates, 43% from Saudi Arabia, and 26% from 
Kuwait. 
 
Surge in Imports of U.S. Capital Goods 
-------------------------------------- 
 
¶7.  Capital goods accounted for 17% of Taiwan's total imports. 
Imports of machinery and equipment (including silicon wafer 
fabricating facilities) showed y-o-y growth of 8% in Q3, up from 
declines in the past four consecutive quarters.  As the United 
States is a major source of capital goods, imports from the United 
States in Q3 surged by 19% from a year ago, much higher than the 4% 
growth in imports from Japan and the 0.2% decline in imports from 
the EU. 
 
¶8.  Consumer goods accounted for only 7.8% of Taiwan's total 
imports.  Delinquent credit/cash card debt problems have dampened 
private consumption and caused imports of consumer goods in the 
first nine months to level off to US$1.3 billion. 
 
Trade with USA Expands 
---------------------- 
 
¶9.  Based on trade statistics for the first nine months this year, 
the United States was Taiwan's third largest trading partner, second 
largest export market, and third largest source of imports. 
 
¶10.  Defying higher interest rates in the United States, Taiwan's 
trade with the United States in the first nine months this year 
expanded, particularly in Q3.  Exports to the United States 
increased 14% from a year ago to US$24.4 billion.  Imports from the 
United States rose 3.3% to US$16.6 billion.  Strong U.S. demand for 
Taiwan's chips, wafers, integrated circuits, crystal display devices 
and other electronic and optical devices and parts has caused growth 
in Taiwan's exports to the United States to accelerate from 7.4% in 
Q1 to 20.1% in Q3. 
 
¶11.  Taiwan high-tech industries started expanding production 
capacity in the second half of this year, and the United States has 
been a major source of the needed equipment.  Consequently, imports 
from the United States, registering a decline of 4% in Q1 and 
another decline of 3.4% in Q2, switched to an increase of 18.6% in 
Q3 when imports from Japan inched up only 4% and imports from EU 
declined 0.2%. 
 
China Still Taiwan's Top Trading Partner 
--------------------------------------- 
 
¶12.  Due to cross-Strait economic integration over the past decade, 
Greater China has exceeded the United States and Japan to become 
Taiwan's top trading partner.  It is Taiwan's largest export market 
and second largest source of imports, only after Japan.  In 
addition, Taiwan has a large trade surplus with Greater China.  In 
the first nine months this year, Taiwan's exports to Greater China 
grew 17% from a year ago to US$65.3 billion, while its imports 
surged 20% to US$19.4 billion.  Taiwan's trade surplus increased 16% 
to US$46 billion, more than triple Taiwan's trade surplus with 
world. 
 
¶13.  Exports to Greater China in the first nine months this year 
accounted for 40% of Taiwan's total exports, up steadily from 12.7% 
in 1990.  Over 80% of Taiwan's exports to Greater China are 
production inputs which are processed into finished goods mainly for 
export from China to such developed nations as the United States, 
 
TAIPEI 00003993  003 OF 003 
 
 
Europe, and Japan.  A growing share of the goods finished in China 
is shipped back to Taiwan. 
 
¶14.  Imports from Greater China in the first nine months this year 
occupied 12.8% of Taiwan's total imports, compared to three percent 
in 1990.  Imports from China are basically finished goods, 
electronic and electronic components requiring lower technologies, 
coals, and other materials. 
 
Japan Is Taiwan's Second Largest Trading Partner 
--------------------------------------------- --- 
 
¶15.  In the first nine months this year, Japan remained Taiwan's 
second largest trading partner, after Greater China.  Japan was 
Taiwan's largest source of imports and third largest export market. 
Taiwan has had a trade deficit with Japan.  During the first nine 
months this year, exports to Japan rose nine percent from a year ago 
to US$12 billion, while imports from Japan leveled off to US$34.7 
billion.  Taiwan's trade deficit with Japan shrank 5% to US$22.6 
billion. 
 
¶16.  As many Taiwan business firms have relocated their production 
bases to China, exports directly from Taiwan to Japan as a 
percentage of Taiwan's total exports in the first nine months this 
year dropped to 7.3% from 12.5% in 1990.  The share of exports to 
the United States has also plunged from 32% to 14.8% during this 
period. 
 
¶17.  Japan remains Taiwan's main source of imports.  However, Japan 
and the European Union did not benefit much from Taiwan high-tech 
firms' recent capacity expansion spending spree. 
 
Regional Economic Integration Favors ASEAN than EU 
--------------------------------------------- ----- 
 
¶18.  Taiwan remains a major source of foreign direct investment in 
Southeast Asia.  Taiwan's exports to ASEAN in the first nine months 
this year grew 18% to US$22.9 billion, and its imports from ASEAN 
increased 15% to US$17.7 billion.  During the period, ASEAN took 14% 
of Taiwan's total exports, exceeding the EU's share of 10.6%. 
Meanwhile, ASEAN supplied 11.7% of Taiwan's imports, higher than the 
EU's share of 8.7%.  In 1990 ASEAN took 10% of Taiwan's exports and 
supplied 7.8% of Taiwan's imports, both less than the EU's 
respective 16.3% and 12.2% shares. 
 
Comment 
------- 
 
¶19.  Taiwan's export growth and trade surplus in Q3 were both higher 
than previously projected.  Region economic integration is rapidly 
proceeding, and Taiwan's bilateral trade integration with Greater 
China and ASEAN will grow while the relative importance of trade 
with the EU and United States declines. 
 
YOUNG