VZCZCXRO8532
RR RUEHGH
DE RUEHIN #0725/01 0880854
ZNR UUUUU ZZH
R 290854Z MAR 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 4671
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCPDOC/USDOC WASHDC
RUEHBK/AMEMBASSY BANGKOK 3632
RUEHBJ/AMEMBASSY BEIJING 6544
RUEHUL/AMEMBASSY SEOUL 8549
RUEHGP/AMEMBASSY SINGAPORE 6857
RUEHKO/AMEMBASSY TOKYO 8601
RUEHML/AMEMBASSY MANILA 9982
RUEHJA/AMEMBASSY JAKARTA 4025
RUEHKL/AMEMBASSY KUALA LUMPUR 3709
RUEHHI/AMEMBASSY HANOI 3258
RUEHBY/AMEMBASSY CANBERRA 4485
RUEHWL/AMEMBASSY WELLINGTON 1744
RUEHHK/AMCONSUL HONG KONG 7788
RUEHGH/AMCONSUL SHANGHAI 0925
RUEHGZ/AMCONSUL GUANGZHOU 0099

UNCLAS SECTION 01 OF 03 TAIPEI 000725 
 
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, SAN FRANCISCO FRB/TERESA CURRAN, AND NEW YORK FRB MARI 
BOLIS 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ECON PINR TW
SUBJECT: Taipei Economic Brief for March 2007 
 
 
¶1.  This cable summarizes selected March 2007 economic events in 
Taiwan: 
 
--Improved Economic Performance 
--Taiwan's FX Reserves Increase 
--Taiwan Targets Insider Trading 
--SMIC Investment Fine Overturned 
--Taiwan's First 8G TFT-LCD Plants 
--Taiwan IC Industry Grows in 2006 
--Taiwan Electronic Components Industry Keeps Growing 
--Labor Pension Management Committee to Begin Function 
--Taiwan Orchids 
--Taiwan's "Solar City" 
--Efforts to Reduce Greenhouse Gases 
 
Improved Economic Performance 
----------------------------- 
 
¶2.  Taiwan improved its economic performance in the first two months 
of 2007 when manufacturing production increased 1.55% on a y-o-y 
basis, up from the 0.5% growth in Q4 of 2006.  Exports rose 7.6% 
from a year ago, up from 5.6% growth in Q4 and better than the 6.5% 
estimated by the Directorate General of Budget, Accounting and 
Statistics (DGBAS) earlier this year.  The Jan-Feb trade surplus of 
US$4.1 billion was 82% more than predicted.  Export order growth 
also increased from 9.6% in Q4 to 13% in Jan-Feb 2007.  Unemployment 
in February declined to a six-year low of 3.79%.  The consumer price 
index rose only one percent.  The unexpectedly good economic 
performance will prompt the DGBAS to upwardly adjust the next 
national income estimates in May. 
 
Taiwan's FX Reserves Increase 
----------------------------- 
 
¶3.  Taiwan's current account surplus in 2006 surged nearly 60% to 
US$25 billion from double-digit expansion of exports, growth in 
triangle trade (orders placed in Taiwan and shipped from elsewhere) 
income, and interest on Taiwan's foreign exchange (FX) reserves. 
The C/A surplus was largely offset by outflows of direct investment 
and insurance firms' portfolio investment.  Depreciation of the US 
Dollar (USD) drove up the USD value of Taiwan's EURO and Yen FX 
reserves.  The FX reserves held by Taiwan's Central Bank (before 
valuation adjustment) increased US$6.1 billion, and after valuation 
adjustment increased US$13 billion.  Taiwan's valuation-adjusted FX 
reserves in December 2006 totaled US$266 billion, about 30% of which 
are in the Euro and Japanese yen. 
 
Taiwan Targets Insider Trading 
------------------------------ 
 
¶4.  Taiwan's prosecutors have come down hard on insider trading.  In 
the past three years, Taiwan's prosecutors have begun investigations 
of 155 suspected insider trading cases referred to them by financial 
regulators.  In mid-March they searched offices and questioned 
senior executives at BenQ (one of the largest personal computer 
suppliers in the world) and Veutron (image scanner affiliated to 
PowerChip, one of the major semiconductor firms in Taiwan).  In the 
long run, an effective functioning regulatory system will help 
Taiwan's business sector and deepen its democracy. 
 
SMIC Investment Fine Overturned 
------------------------------- 
 
¶5.  The Taipei High Administrative Court (THAC) announced on March 
15 that it had found Semiconductor Manufacturing International 
Company (SMIC) CEO Richard Chang not-guilty of illegal investment in 
China.  Taiwan's Ministry of Economic Affairs (MOEA) had found in 
 
TAIPEI 00000725  002 OF 003 
 
 
March 2005 that Chang, a former Taiwan Semiconductor Manufacturing 
Company executive, had invested in China-based SMIC without the 
MOEA's approval in violation of Taiwan's investment regulations. 
Chang filed an appeal with the THAC and applied to give up his 
Taiwan citizenship.  The court found that evidence submitted by the 
MOEA was not enough to prove Chang had personally invested in SMIC. 
The court asked Taiwan's MOEA to nullify the NT$5 million 
(US$150,000) fine imposed on Chang.  It was the first reversal of an 
MOEA penalty of this kind.  The MOEA will appeal the decision with 
the Supreme Administrative Court. 
 
Taiwan's First 8G TFT-LCD Plants 
-------------------------------- 
 
¶6.  Auoptronics recently announced that it will build three eighth 
generation (8G) TFT-LCD plants in the Central Taiwan Science Park 
(CTSP).  Each 8G TFT-LCD plant will require an investment of NT$110 
billion (US$3.3 billion).  Construction will begin late this year. 
At present, only Sharp (of Japan) has an 8G TFT-LCD plant, which 
started mass production last year.  Samsung (of South Korea) is 
constructing an 8G plant scheduled to begin mass production in H2 
¶2007.  Currently, Auoptronics has 12 TFT-LCD plants in Taiwan, with 
three located in the CTSP, two in Miaoli, and seven in the Hsinchu 
Science Park.  In response to Taiwan's advance 8G TFT-LCD plants, 
Dupont (of the United States) will start building a flat panel 
display testing lab in Q3 2007 to meet Taiwan flat panel 
manufacturers' demand. 
 
Taiwan IC Industry Grows in 2006 
--------------------------------- 
 
¶7.  Output of Taiwan's Integrated Circuit (IC) industry in 2006 
totaled NT$1,393 billion (US$42 billion), an increase of 24.6 
percent over 2005.  Taiwan outpaced the global IC industry, which 
grew by 8.9 percent.  The Taiwan Semiconductor Industry Association 
(TSIA) predicts that Taiwan IC industry's growth will slow to 11.5% 
in 2007 with output of NT$1,554 billion (US$47 billion).  IC 
manufacturing will grow 9% to NT$835 billion (US$25 billion) this 
year.  IC design output values will be NT$370 billion (US$11 
billion) with a 14% growth, IC packaging will be NT$246 billion 
(US$7.5 billion) with a 17% growth, and IC testing will be NT$103 
billion (US$3 billion) with an 11% growth. 
 
Taiwan Electronic Components Industry Keeps Growing 
--------------------------------------------- ------ 
 
¶8.  In 2006, production of Taiwan's electronic components industry 
increased 12% to NT$666.2 billion (US$20 billion).  The Industry and 
Technology Intelligence Services' (ITIS) expects the industry will 
grow another 12% in 2007 to US$746.5 billion (US$22.6 billion) as 
demand for information technology (IT) products, telecommunications, 
consumer electronics, electronic auto devices, and game consoles 
will continue to grow.  The ITIS believes that overseas production 
(mainly in China) of Taiwan electronic components industry's export 
orders will increase further after the ratio advanced from 50% in 
2005 to 52% in 2006. 
 
Taiwan Orchids 
-------------- 
 
¶9.  The Council of Agriculture sponsored an international orchid 
show at Houbi, Tainan County in mid-March.  About 2,000 foreign 
orchid distributors from 22 nations (including the United States, 
Japan, and Europe) attended the show.  Among them, California-based 
Matsui Nursery, the largest potted orchid distributor in the world, 
placed huge orders with Taiwan growers.  Matsui Nursery supplies 50% 
of the California market and 20% of the entire U.S. market. 
 
TAIPEI 00000725  003 OF 003 
 
 
 
Labor Pension Management Committee to Begin Function 
--------------------------------------------- ------- 
 
¶10.  The Legislative Yuan (LY) completed legislation of the Labor 
Pension Management Committee Statute on March 2.   The legislation 
will become a legal basis for "investment" of pension funds.  As of 
February 2007, 4.29 million people had joined the pension program, 
and their contribution to the pension program had reached NT$140 
billion (US$4.2 billion).  Prior to the legislation, the pension 
program was not permitted to invest its reserve funds in any assets 
other than bank deposits.  The Council of Labor Affairs (CLA) 
expects to double the rate of return to 4% in the future. 
 
Taiwan to Build "Solar City" 
---------------------------- 
 
¶11.  Taiwan will construct a "solar city" at the Southern Taiwan 
Science Park (STSP).  The five-year project will require NT$1.2 
billion (US$36 million) to build solar energy facilities for 4,000 
household users.  Solar energy will be available to 800 users in the 
first year, and increase by 800 each of the next four years.  By the 
fifth year, the project will produce 14.78 million kilowatt-hours of 
electricity, an amount sufficient to meet the demand of the 4,000 
users and public infrastructure of the solar city.  Tainan where the 
STSP is located is suitable for solar energy as it enjoys abundant 
sunshine and is home to the world's largest cluster of solar 
optoelectronics companies, including Motech and Eton. 
 
Efforts to Reduce Greenhouse Gases 
---------------------------------- 
 
¶12.  Recently, the Taiwan Semiconductor Industry Association (TSIA) 
and the Taiwan TFT-LCD Association voluntarily signed an agreement 
with the Ministry of Economic Affairs (MOEA) on reduction of their 
greenhouse gas emissions.  Under the agreement, 16 companies of the 
two associations promised to reduce their carbon dioxide emissions 
by 24 million tons between 2006 and 2010.  A total of 125 companies 
in six industries in Taiwan signed similar agreements with the MOEA 
in 2005, promising to reduce energy consumption by 1.39 million 
kiloliters oil equivalent and cut carbon dioxide emission by 4.02 
million metric tons.  The six industries include synthetic fiber 
manufacturers, printing/dyeing/finishing, papermaking, 
petrochemical, iron and steel, and cement. 
 
WANG