VZCZCXRO4477
RR RUEHCN RUEHGH RUEHVC
DE RUEHIN #0568/01 0730257
ZNR UUUUU ZZH
R 140257Z MAR 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 4426
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHOO/CHINA POSTS COLLECTIVE
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHINGTON DC

UNCLAS SECTION 01 OF 02 TAIPEI 000568 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USTR 
STATE FOR EAP/ TC, EAP/EP 
COMMERCE FOR 3132/USFCS/OIO/EAP/WZARIT 
TREASURY FOR OASIA/LMOGHTADER 
USTR FOR STRATFORD, ALTBACH 
 
E.O. 12958: N/A 
TAGS: ETRD ECON PREL CH TW
SUBJECT: Booming Cross-Strait Trade Benefits Taiwan Economy but 
Could Feed Concerns of Dependence 
 
Ref: Taipei 516 
 
06 Taipei 910 
 
¶1. (SBU) Summary:  Taiwan's trade with China grew by 15.4 percent 
last year, faster than its overall trade.  Imports from the PRC grew 
at even faster rate, up 23.3 percent.  China was Taiwan's largest 
trade partner and export market.  It passed the United States as 
Taiwan's second largest source of imports for the first time in 
annual data.  Taiwan's share of the PRC's total trade declined even 
as the PRC's share of Taiwan trade continued to increase.  Although 
Taiwan's economy benefits from growing trade with China, some worry 
that the island's economy is too dependent on China.  End summary. 
 
Outpacing Overall Trade Growth 
------------------------------ 
 
¶2. (U) Taiwan's total trade with the PRC in 2006 grew 15.4 percent 
to US$88.1 billion.  Trade with China outpaced Taiwan's overall 
trade, which rose by 12.0 percent.  Imports from China were up an 
impressive 23.3 percent to US$24.8 billion.  Taiwan's total imports 
rose 11.0 percent.  Taiwan's exports to China grew 12.5 percent to 
US$63.3 billion, a slightly slower pace than global exports, which 
rose by 12.9 percent. 
 
¶3. (U) Taiwan's trade surplus with China rose to US$38.5 billion, 
growing by 6.6 percent.  However, this was the slowest pace of 
growth since 2001.  Growth in exports to China declined from 15.0 
percent in 2005 to 12.5 percent last year.  Growth in imports, on 
the other hand, rose from 19.7 percent in 2005 to 23.3 percent. 
 
Largest Trade Partner and Export Market 
--------------------------------------- 
 
¶4. (U) The PRC was Taiwan's most important trading partner for the 
fourth year in a row, increasing its share of Taiwan's total trade 
to 20.7 percent.  This is a slight increase from 20.0 percent in 
¶2005.  Japan was the second largest, accounting for 14.7 percent of 
Taiwan's total trade in 2006; and the United States was third with 
12.9 percent.  China was also Taiwan's largest export market. 
Exports to China in 2006 accounted for 28.3 percent of Taiwan's 
total exports, which is a slight drop from 28.4 percent in 2005. 
This marked the first decline in China's share in at least five 
years.  The United States, Taiwan's second largest export market, 
accounted for 14.4 percent of exports, down from 14.7 percent in 
¶2005. 
 
PRC Overtakes U.S. in Exports to Taiwan 
--------------------------------------- 
 
¶5. (U) In 2006, China surpassed the United States to become Taiwan's 
second largest source of imports.  (Note: China first surpassed the 
United States in monthly trade data in September 2005, but still 
ranked third overall in 2005.  Last year was the first time China 
was the second largest source of Taiwan's imports in annual trade 
data.  End note.)  The PRC accounted for 12.2 percent of Taiwan's 
total imports compared to 22.8 percent for Japan and 11.2 percent 
for the United States.  Imports from the PRC have grown 
substantially in recent years even though Taiwan maintains 
restrictions on the import of certain PRC goods, especially 
agricultural products. 
 
Integrated Cross-Strait Supply Chains 
------------------------------------- 
 
¶6. (U) Taiwan trade with China reflects complex cross-Strait supply 
chains.  Machinery, electrical equipment, and optoelectronics 
equipment (including equipment used in the manufacture of flat-panel 
displays and digital cameras) accounted for 62.9 percent of Taiwan's 
total exports to the PRC in 2006.  These same categories accounted 
for 55 percent of Taiwan's total imports from the PRC.  Many of 
these goods are components for information technology (IT) hardware 
and other consumer electronics that are assembled in China and are 
subsequently exported to the United States, Europe and Japan.  Three 
of China's top four exporters in 2005 were Taiwan IT hardware 
manufacturers. 
 
PRC Less Reliant on Taiwan Trade 
-------------------------------- 
 
¶7. (U) China's share of Taiwan's total trade continues to grow. 
However, Taiwan's share of the PRC's total trade declined again last 
 
TAIPEI 00000568  002 OF 002 
 
 
year.  Trade with Taiwan accounted for 5.05 percent of China's total 
trade for the first 11 months of 2006, down from 5.37 percent in 
¶2005.  Although the decline is small, Taiwan's share has fallen 
gradually from a peak of 8.21 percent in 1996.  Taiwan is the PRC's 
fifth largest trade partner and third largest source of imports.  As 
recently as 2004, it was the PRC's second largest source of imports 
but was overtaken in 2005 by South Korea. 
 
Troubling News for Some 
----------------------- 
 
¶8. (SBU) Comment: Cross-Strait trade has benefited many Taiwan firms 
and been an important driver of the island's economic growth in 
recent years.  Nevertheless, some people in Taiwan are concerned 
that China's share of Taiwan's total trade continues to grow even as 
Taiwan's share of China's trade shrinks.  Even though Taiwan's trade 
surplus with China is unlikely to turn into deficit any time soon, 
some will be troubled by strong growth in imports from China.  These 
trade statistics will do nothing to allay concerns that Taiwan's 
economy is too dependent on China. 
 
YOUNG