VZCZCXRO5843
RR RUEHCN RUEHGH RUEHVC
DE RUEHIN #0267/01 0330558
ZNR UUUUU ZZH
R 020558Z FEB 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 3981
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEKJCS/SECDEF WASHINGTON DC
RHHMUNA/USPACOM HONOLULU HI
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 03 TAIPEI 000267 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USTR 
STATE FOR EAP/TC 
COMMERCE FOR 3132/USFCS/OIO/EAP/WZARIT 
TREASURY FOR OASIA/LMOGHTADER 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ECON TW CH
SUBJECT: TAIWAN 2006 INVESTMENT IN CHINA REACHES NEW HIGH 
 
REF: 06 TAIWAN 4164 
 
¶1. (U) Summary: Taiwan and PRC official data for 
planned Taiwan investment in Mainland China both 
reached new highs in 2006.  Taiwan's approved 
investment in China grew 27.2 percent from 2005 to 
US$7.64 billion.  The rise was due to a dramatic 
increase in the size of investment projects.  End 
summary. 
 
Approved Investment Surges 
-------------------------- 
 
¶2. (U) Taiwan's 2006 approved investment in China grew 
27.2 percent from 2005 to reach US$7.64 billion 
according to data from Taiwan's Ministry of Economic 
Affairs Investment Commission (MOEA/IC).  This marked 
a dramatic reverse from the 13.5-percent decline in 
¶2005.  The PRC maintained is position as the 
predominant destination for Taiwan foreign investment, 
but its share of Taiwan's total foreign direct 
investment (FDI) declined to 63.9 percent from 71.0 
percent in 2005.  MOEA/IC data on approved investment 
is provided below: 
 
             Approved Amount  Percent  Percent of 
Year  Cases   (US$ billion)   Change   Total FDI 
----  -----  ---------------  -------  ---------- 
2004  2,004       6.94         51.1%     67.2% 
2005  1,297       6.01        -13.5%     71.0% 
2006  1,090       7.64         27.2%     63.9% 
 
 
¶3. (U) The average size of approved investment 
projects rose sharply as the number of cases fell.  In 
2006, MOEA/IC approved 1,090 investment proposals, 
down from 1,297 in 2005.  However, the average size 
rose to US$7.0 million from US$4.6 million. 
 
¶4. (U) MOEA/IC attributed the surge to investment 
expansion by large Taiwan firms financed with revenue 
earned in the PRC.  Hon Hai Precision Industries, for 
example, was approved to invest US$90 million and 
US$100 million in two separate projects.  Hon Hai has 
been identified as the largest exporter and foreign 
exchange earner in the PRC.  In addition, large 
semiconductor projects were approved after further 
relaxation of Taiwan's investment policies for that 
industry.  Advanced Semiconductor Engineering Inc. 
received approval to purchase a PRC semiconductor 
packaging and testing firm for approximately US$60 
million and ProMOS Technologies was authorized to 
build a US$365 million chip factory (reftel).  (Note: 
The approval granted to Powerchip Semiconductor 
Corporation in December 2006 to build a semiconductor 
plant was preliminary pending submission of further 
documentation.  That investment will appear in 
MOEA/IC's 2007 data.  End note.) 
 
East and South China Dominate 
----------------------------- 
 
¶5. (U) Coastal provinces continue to be the main 
destinations for Taiwan investment in the PRC. 
Jiangsu Province took the lead with over 37.7 percent 
of Taiwan's investment in the Mainland, followed by 
Guangdong, Shanghai City, Zhejiang, and Fujian. 
Together the five top areas accounted for 84.3 percent 
of Taiwan's China investment.  However, their 
percentage share of total approved investment in China 
fell from 91 percent in 2005.  The largest increase 
outside of the top five areas was in Chongqing City, 
where the approved investment in the ProMOS 
semiconductor facility drove up investment from 
US$12.8 million in 2005 to US$398.3 million in 2006. 
The following chart shows the number of approved cases 
for each province with the total amount of approved 
investment: 
 
--                  Approved Amount  Percent of 
 
TAIPEI 00000267  002 OF 003 
 
 
Location     Cases   (US$ million)      Total 
--------     -----  ---------------  ---------- 
Jiangsu       282        2,883          37.7% 
Guangdong     245        1,415          18.5% 
Shanghai      190        1,042          13.6% 
Zhejiang       52          591           7.7% 
Fujian        155          520           6.8% 
Others        166        1,191          15.7% 
PRC Total   1,090        7,642         100.0% 
 
¶6. (U)  A recent report by the Taiwan Business 
Association in Shenzhen indicated that Taiwan 
enterprises in Shenzhen, Guangzhou, Dongguan, and other 
cities in the Pearl River Delta area have faced a less 
favorable investment environment in 2006.  It 
complained of rising production costs, shortages of 
electricity and water, and new local government 
policies forcing enterprises with high rates of energy 
consumption and waste production to move elsewhere. 
Others have noted a trend of labor-intensive 
manufacturing moving away from coastal areas or out of 
China to Vietnam and India.  However, approved 
investment in Guangzhou continued to grow in 2006, 
rising 16.0 percent. 
 
Focus Still on Electronics 
-------------------------- 
 
¶7. (U) Taiwan's investment in Mainland China is 
increasingly concentrated in manufacturing of 
electronic goods, components and machinery.  These 
categories accounted for 44.8 percent of total 2006 
Taiwan investment in PRC compared to 39.9 percent a 
year earlier.  Investment in electronic components, 
used mainly in manufacturing of PCs, cell phones and 
other IT hardware, was the largest single category 
with approved investment valued at US$1.6 billion, a 
90.4 percent increase over the previous year.  Two 
non-manufacturing industries also increased their 
share of total investment.  Wholesale and retail trade 
and special, scientific and technical services 
accounted for 4.1 percent and 3.0 percent of total 
investment, respectively.  The following chart shows 
Taiwan investment data for the top ten major 
industrial categories: 
 
--                              Amount    Percent 
Industry               Cases  (US$ mil.)  of Total 
--------               -----  ----------  -------- 
Electronic components    94      1,619      21.2% 
Computers, Telecom. 
A/V equipment            73      1,140      14.9% 
Electrical machinery    105        665       8.7% 
Chemicals                49        548       7.2% 
Metals and metal goods   72        447       5.8% 
Precision, optical 
--medical equipment      49        423       5.5% 
Machinery                94        389       5.1% 
Non-metallic minerals    23        387       5.1% 
Wholesale and retail 
--trade                 150        313       4.1% 
Special, scientific 
--& technical services   62        232       3.0% 
Plastic products         48        220       2.9% 
Textiles                 41        165       2.2% 
Others                  230      1,094      14.3% 
Total                 1,090      7,642     100.0% 
 
PRC Data - Opposing Trends 
-------------------------- 
 
¶8. (U) PRC data on Taiwan investment showed two 
opposing trends.  Figures for contracted value of 
Taiwan investment rose 9.5 percent from US$10.3 
billion in 2005 to US$11.3 billion last year. 
Contracted investment has now increased for four 
consecutive years.  Like Taiwan's data on approved 
investment, contracted investment reflect the 
intentions of Taiwan firms to invest in the Mainland. 
However, PRC data for realized investment, which 
 
TAIPEI 00000267  003 OF 003 
 
 
attempts to measure dollars actually spent by Taiwan 
investors, declined for the fourth straight year to 
US$2.1 billion. 
 
¶9. (U) According to our conversations with government 
officials, academics and industry leaders, there are 
several possible explanations for the growing 
differences between contracted and realized 
investment.  First, Taiwan firms may exaggerate the 
value of their contracted investment with the 
encouragement of local PRC officials eager to show 
rising levels of investment in their jurisdiction. 
Second, PRC macroeconomic controls may delay central 
government approval for projects that have already 
been contracted.  Finally, realized investment figures 
may not capture all of the money spent by Taiwan 
investors in the PRC.  Realized investment figures are 
based on funds remitted through banks to the PRC. 
Taiwan investment in the Mainland is increasingly 
financed with profits earned locally instead of funds 
remitted from Taiwan.  In addition, financing remitted 
from Taiwan must be remitted indirectly through a 
third territory such as Hong Kong, the British Virgin 
Islands and other tax havens.  Some of these funds may 
not be identified as Taiwan investment in the PRC 
realized investment statistics. 
 
Comment - Taiwan Firms Still Eager to Invest 
-------------------------------------------- 
 
¶10. (SBU) Despite another decline in realized 
investment, the Taiwan approved investment and PRC 
contracted investment data both suggest that the 
intentions of Taiwan firms are clear.  They are still 
eager to expand their investment in the PRC, and the 
scale of that investment is growing.  Cross-Strait 
economic integration continues to deepen. 
WANG