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Viewing cable 07TAIPEI1257, Taipei Economic Brief for May 2007

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Reference ID Created Released Classification Origin
07TAIPEI1257 2007-06-05 09:11 2011-08-23 00:00 UNCLASSIFIED American Institute Taiwan, Taipei
VZCZCXRO5402
RR RUEHGH
DE RUEHIN #1257/01 1560911
ZNR UUUUU ZZH
R 050911Z JUN 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 5507
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCPDOC/USDOC WASHDC
RUEHBK/AMEMBASSY BANGKOK 3710
RUEHBJ/AMEMBASSY BEIJING 6867
RUEHUL/AMEMBASSY SEOUL 8690
RUEHGP/AMEMBASSY SINGAPORE 6919
RUEHKO/AMEMBASSY TOKYO 8826
RUEHML/AMEMBASSY MANILA 0073
RUEHJA/AMEMBASSY JAKARTA 4083
RUEHKL/AMEMBASSY KUALA LUMPUR 3751
RUEHHI/AMEMBASSY HANOI 3324
RUEHBY/AMEMBASSY CANBERRA 4524
RUEHWL/AMEMBASSY WELLINGTON 1794
RUEHHK/AMCONSUL HONG KONG 8118
RUEHGH/AMCONSUL SHANGHAI 1129
RUEHGZ/AMCONSUL GUANGZHOU 0302
UNCLAS SECTION 01 OF 02 TAIPEI 001257 
 
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 May 2007 
 
 
1.  This cable summarizes selected May 2007 economic events in 
Taiwan: 
 
--Economic Growth 
--Economic Prospects 
--High-speed Rail Impact 
--Taiwan and Japan Amend Aviation Agreement 
--New Cross-Strait Operations 
--Free Trade Agreement (FTA) 
--Ban on Bank Branches Lifted 
--Greenhouse Gas Legislation 
 
Taiwan Raises Economic Growth Rates 
----------------------------------- 
 
2.  Unexpectedly good trade performance in the first four months has 
offset the adverse effects of the still pending 2007 central budget 
causing Taiwan's Directorate General of Budget, Accounting and 
Statistics (DGBAS) to raise its estimate of real Q1 GDP growth to 
4.15%.  The manufacturing sector reported growth accelerated from 
0.5% in Q4 of 2006 to 1.1% in Q1 and 3.1% in April of 2007.  Higher 
real estate and stock prices have contributed to a "wealth effect" 
and faster growth in retail sales and private consumption. 
Inflation is below one percent, and the unemployment rate of 3.8% is 
the lowest over the past six years. 
 
Bright Economic Prospects 
------------------------- 
 
3.  The DGBAS expects regional trade will sustain growth of Taiwan's 
exports throughout 2007, despite signs of economic slowdown in the 
United States.  (East Asia currently absorbs about 65% of Taiwan's 
total exports.)  According to a Taiwan Institute of Economic 
Research (TIER) survey in May, half of manufacturing firms 
anticipate better performance in the next six months, while only 14% 
predict worse performance.  Resolution of card debt problems and a 
decline in unemployment will drive up private consumption growth in 
2007 to 3.0% from 1.5% in 2006, according to DGBAS.  The DGBAS 
expects Taiwan's real GDP growth will accelerate to 4.7% in Q4. 
 
Impact of High-speed Rail 
------------------------- 
 
4.  Taiwan's high-speed rail, which began operation in January, has 
cut travel time between major cities in Taiwan, drawn Taiwan's four 
science industrial parks closer, and stimulated development of 
tourism by permitting one-day trips.  However, the high-speed rail 
has hunted the existing transportation businesses.  Revenue of 
Taipei-Kaohsiung passenger buses have declined by one-third.  The 
Taiwan Railway Administration reported a 5.6% decline in its 
non-high-speed service revenue in March.  Airlines companies have 
suspended all flights between Taipei and Taichung and have reduced 
fares and flights between Taipei and Kaohsiung. 
 
Taiwan and Japan Amend Aviation Agreement 
----------------------------------------- 
 
5.  On May 21, 2007, Taiwan's Civil Aeronautics Administration (CAA) 
confirmed that Taiwan and Japan amended their bilateral aviation 
agreement in mid-March.    According to the amendment, Japan will 
open charter flights to all Taiwan air carriers, and Taiwan will 
allow Japan's Nippon Cargo Airlines to enter Taiwan's air cargo 
market.   Japan insisted that Taiwan open its air cargo market in 
exchange for lifting restrictions on charter flights.  Taiwan agreed 
because of strong need among Taiwan's smaller carriers to alleviate 
the impact from Taiwan's high-speed rail.  Taiwan's larger carriers, 
China Airlines and EVA, opposed the amendment. 
 
TAIPEI 00001257  002 OF 002 
 
 
 
New Cross-Strait Operations 
--------------------------- 
 
6.  A Taiwan ship named the Chuan Fu Lun became the first vessel to 
sail directly from PRC-controlled Fuzhou to Taiwan-controlled Penghu 
via the expanded "mini-links."  It arrived in Penghu with 1,600 tons 
of gravel on May 14, 2007.  Previously, the mini-links connected the 
Taiwan-controlled islands of Kinmen and Matsu, which lie just off 
the coast of China, with the ports of Xiamen and Fuzhou in Fujian 
Province.  In March, Taiwan approved the expansion of the mini-links 
to include the Penghu Islands, which are much closer to Taiwan. 
Starting on April 1, 2007, Penghu residents are permitted to travel 
to China using the existing ferry service from Kinmen.  Although 
cargo ships are permitted to sail directly to and from Penghu, 
passenger ships are allowed only on a case-by-case basis and then 
only with a stop in Kinmen. 
 
Free Trade Agreement (FTA) 
-------------------------- 
 
7.  Taiwan signed a multi-lateral FTA with El Salvador and Honduras 
on May 7.  Taiwan already has signed bilateral FTAs with Panama, 
Guatemala and Nicaragua. 
 
Ban on Bank Branches Lifted 
--------------------------- 
 
8.  On May 11, the Financial Supervisory Commission (FSC) lifted a 
six-year ban on the establishment of branches by banks.  Banks 
meeting FSC criteria will be permitted to establish up to three new 
branches a year.  The criteria include a minimum capital adequacy 
ratio of 10%, a maximum non-performing loan (NPL) ratio of 2%, a 
minimum bad debt/reserve ratio of 50%, and a minimum 5% return on 
net worth over the past three years.  Few Taiwan banks meet these 
criteria. 
 
Greenhouse Gas Reduction Legislation 
------------------------------------ 
 
9.  On May 7, the Legislative Yuan (LY) Environmental Protection 
Committee completed its first reading of the proposed Greenhouse Gas 
Emission Reduction Law.  The bill seeks to keep annual greenhouse 
gas emissions during 2025-2030 at the 2005 level.  The Chen 
Administration opposes the bill which will prevent Taiwan from 
implementing major industrial projects, including a large steel mill 
planned by Formosa Plastic Group and a naphtha cracker project 
proposed by the state-owned CPC (Taiwan). 
 
YOUNG