VZCZCXRO2334
RR RUEHGH
DE RUEHIN #4004/01 3340903
ZNR UUUUU ZZH
R 300903Z NOV 06
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 3248
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCPDOC/USDOC WASHDC
RUEHBK/AMEMBASSY BANGKOK 3499
RUEHBJ/AMEMBASSY BEIJING 6014
RUEHUL/AMEMBASSY SEOUL 8295
RUEHGP/AMEMBASSY SINGAPORE 6706
RUEHKO/AMEMBASSY TOKYO 8264
RUEHML/AMEMBASSY MANILA 9858
RUEHJA/AMEMBASSY JAKARTA 3958
RUEHKL/AMEMBASSY KUALA LUMPUR 3607
RUEHHI/AMEMBASSY HANOI 3173
RUEHBY/AMEMBASSY CANBERRA 4386
RUEHWL/AMEMBASSY WELLINGTON 1634
RUEHHK/AMCONSUL HONG KONG 7240
RUEHGH/AMCONSUL SHANGHAI 0587
RUEHGZ/AMCONSUL GUANGZHOU 9770

UNCLAS SECTION 01 OF 02 TAIPEI 004004 
 
SIPDIS 
 
SIPDIS 
 
STATE PLEASE PASS USTR 
STATE FOR EAP/RSP/TC, EAP/EP 
USTR FOR ALTBACH and Stratford 
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 November 2006 
 
 
¶1.  This cable summarizes selected November 2006 economic events in 
Taiwan: 
 
--Domestic Demand to Sustain 2007 Growth; 
--Foreign Direct Investment Quadruples; 
--Carlyle to Acquire World's Largest Chip Packaging Firm; 
--Long-term Goals and Medium-term Development Plan; 
--Overseas Taiwan Firms Encouraged to Invest in Taiwan; 
--Efforts to Make Taiwan a High Tech Society; 
--Taiwan Pushing for Tax Agreement with US. 
 
Domestic Demand to Sustain Taiwan's 2007 Growth 
--------------------------------------------- -- 
 
¶2.  In late November 2007, the Directorate General of Budget 
Accounting and Statistics (DGBAS) raised Taiwan's estimated 2006 
economic growth to 4.39% from 4.14%, mainly due to export 
performance.  DGBAS and major private think tanks anticipate 
Taiwan's 2007 growth will remain above 4%.  The source of 2007 
growth is projected to shift from external to internal as export 
growth slows from 12.5% in 2006 to 6.1% in 2007.  DGBAS expects 
private investment growth in 2007 will accelerate to 1.89% from 
0.15% in 2006.  Meanwhile, private consumption growth will rise from 
1.5% to 3.0% as credit/cash card debt problems began to disappear in 
Q3 this year. 
 
Foreign Direct Investment Quadruples 
------------------------------------ 
 
¶3.  Inbound foreign direct investment (FDI) January-October 2006 
totaled US$11.23 billion, a 291 percent year-on-year increase.  One 
factor was Philips Electronics Industries (Taiwan) transferring its 
holdings in Taiwan Semiconductor Manufacturing Company (TSMC) in 
January 2006 to Royal Philips Electronics of the Netherlands.  This 
deal totaled US$3.8 billion which accounted for one-third of total 
FDI approved in the first ten months this year.  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. 
Other new projects principally 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, and Standard Chartered Bank's 
merger with Hsinchu International Bank. 
 
Carlyle to Acquire ASE 
---------------------- 
 
¶4.  On November 26, Carlyle Group, a U.S. private equity fund, 
announced plans to acquire Advanced Semiconductor Engineering (ASE), 
the world's largest chip packaging firm, by buying ASE shares on the 
Taiwan Stock Exchange (TSE).  After acquiring majority equity, 
Carlyle will de-list ASE from TSE.  Carlyle is one of the foreign 
investors attracted by future growth opportunities, low share 
prices, and abundant inexpensive funding capital that Taiwan started 
earlier this year permitting foreign investors to use as a source of 
foreign direct investment.  Taiwan's interest rates are the lowest 
in Asia after only Japan. 
 
Long-term Goals and Medium-term Development Plan 
--------------------------------------------- --- 
 
¶5.  Taiwan recently set ten-year economic goals and a first phase 
three-year industrial development plan.  Over the next ten years, 
Taiwan's per capita GDP will double, up from an estimated US$15,690 
in 2006 to US$30,000 in 2015.  Average annual economic growth will 
be 5%.  The unemployment rate will be below 4%, and the inflation 
rate will be below 2%.  Taiwan anticipates the service sector will 
grow by an average annual rate of 5.5%, faster than a projected rate 
 
TAIPEI 00004004  002 OF 002 
 
 
of 1% for agriculture and a projected rate of 4.3% for the 
industrial sector. 
 
¶6.  To achieve the long-term goals, Taiwan has adopted a three-year 
development program under which the authorities will substantially 
discount rent of industrial land, relax restrictions on employment 
of foreign workers, and provide small and medium enterprises funding 
assistance.  Industries targeted for growth over the next three 
years include banking, securities and insurance, logistic and 
distribution, medical care, digital content, tourism, 
telecommunications, information technology, and other services; and 
semiconductor, LCD-panel, petrochemicals, iron and steel, and 
machinery in the industrial sector. 
 
Overseas Taiwan Firms Encouraged to Invest in Taiwan 
--------------------------------------------- ------- 
 
¶7.  The Ministry of Economic Affairs (MOEA) has set up an 
inter-agency task force to encourage overseas Taiwan enterprises to 
invest in Taiwan.  After its first meeting on November 14, the task 
force published results of a survey indicating that 401 overseas 
Taiwan companies want to return and invest in Taiwan.  The majority 
of these companies are currently operating in Southeast Asia and 
China, with several in the United States.  Taiwan authorities have 
earmarked NT$200 billion (US$6.1 billion) in low-interest loans for 
returning Taiwan companies. 
 
Efforts to Make Taiwan Global ICT Model Society 
--------------------------------------------- -- 
 
¶8.  Vice Premier Tsai Ing-wen recently announced two programs to 
make Taiwan a model society in term of information and 
communications technology (ICT) applications.  The M-Taiwan Plan 
program initiated in 2005 is designed to increase wireless networks 
and Internet usage.  The plan also seeks to provide more ICT access 
in remote and rural areas.  Another program to be adopted in the 
near future is called the U-Taiwan Plan which will utilize smart 
devices to allow Internet access anyplace anytime.  An aim of the 
plan is to increase Taiwan's broadband penetration rate from less 
than 10% in 2002 to 80% while promoting high-definition television 
in households.  These two plans are expected create nearly NTD 1 
trillion (US$30.3 billion) of trade and investment opportunities. 
 
Taiwan Pushing for Tax Agreement with US 
---------------------------------------- 
 
¶9.  Echoing AIT/T Director Steve Young's recent call in his November 
21 speech to AmCham, Taiwan's Ministry of Finance (MOF) is promoting 
tax agreements with the United States and Canada.  U.S. enterprises 
in Taiwan are seeking relief from taxes on royalties and commissions 
earned and on corporate bonds.  Tax agreements avoid double taxation 
by different jurisdictions.  Some Taiwan residents are worried that 
such agreements will expose their overseas income to taxation by 
Taiwan. 
 
YOUNG