VZCZCXRO6904
RR RUEHGH RUEHHM
DE RUEHIN #1622/01 2000855
ZNR UUUUU ZZH
R 190855Z JUL 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 6063
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCPDOC/USDOC WASHDC
RUEHBK/AMEMBASSY BANGKOK 3765
RUEHBJ/AMEMBASSY BEIJING 7039
RUEHUL/AMEMBASSY SEOUL 8776
RUEHGP/AMEMBASSY SINGAPORE 6943
RUEHKO/AMEMBASSY TOKYO 8931
RUEHML/AMEMBASSY MANILA 0101
RUEHJA/AMEMBASSY JAKARTA 4099
RUEHKL/AMEMBASSY KUALA LUMPUR 3779
RUEHHI/AMEMBASSY HANOI 3348
RUEHBY/AMEMBASSY CANBERRA 4557
RUEHWL/AMEMBASSY WELLINGTON 1827
RUEHHM/AMCONSUL HO CHI MINH CITY 0108
RUEHHK/AMCONSUL HONG KONG 8285
RUEHGH/AMCONSUL SHANGHAI 1234
RUEHGZ/AMCONSUL GUANGZHOU 0411

UNCLAS SECTION 01 OF 03 TAIPEI 001622 
 
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 AND NY FRB MARIA 
BOLIS 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ECON PINR ETRD TW
SUBJECT:  Trade Figures Signal Economic Improvement 
 
 
SUMMARY 
------- 
 
¶1.  In the first half (H1) of 2007, Taiwan's exports grew faster 
than imports, leading to a 36% increase in the trade surplus. 
Imports of capital goods in the second quarter (Q2) shifted to 
growth, signaling an increase in domestic investment.  Higher energy 
prices in June drove up Taiwan's imports from oil producing 
countries.  While Greater China (PRC and Hong Kong) remained 
Taiwan's largest trading partner in H1 of 2007, trade with Vietnam 
and India gained in relative importance.  END SUMMARY. 
 
Trade Surplus Broadened 
----------------------- 
 
¶2.  In H1 of 2007, Taiwan's trade surplus increased 36% from the 
same period a year ago to US$10.5 billion, as exports continued to 
grow faster than imports.  Taiwan's exports in the six-month period 
grew 7.5% from a year ago to US$113.9 billion, while its imports 
rose 5.3% to US$103.4 billion, according to statistics recently 
published by the Ministry of Finance. 
 
Accelerating Import Growth 
-------------------------- 
 
¶3.  Import growth accelerated from a y-o-y 3% in Q1 to 7% in Q2. 
The Q2 growth rate for materials and semi-finished goods, which 
account for three-quarters of Taiwan's total imports, rose to 8%, an 
indicator of growing demand for production inputs by the island's 
export sector.  Expansion of manufacturing capacity has prompted 
imports of capital goods to shift from a decline of 2% in Q1 to 
growth of 7.6% in Q2.  Capital goods accounted for 16% of Taiwan's 
total imports. 
 
Crude Oil Price Hikes 
--------------------- 
 
¶4.  Crude oil prices, after declining early this year, began to rise 
in June and exceeded US$70 per barrel in mid-July.  Consequently, 
Taiwan's imports from the United Arab Emirates, Saudi Arabia, and 
Iran in June surged 45% from a year ago to US$1.7 billion.  In the 
first five months, the value of crude oil imports declined 14%. 
 
Trade with Greater China 
------------------------ 
 
¶5.  Greater China is Taiwan's largest trading partner.  In H1 of 
2007, Greater China took 40% of Taiwan's total exports, far more 
than the 13.5% share for the United States, 14% for ASEAN, and 11% 
for the European Union.  Taiwan's exports to China are principally 
production inputs required by Taiwan firms operating in China. 
Machinery and optoelectronic equipment accounted for 60% of Taiwan's 
total shipments to Greater China, while materials and semi-finished 
goods occupied another 30-35%. 
 
¶6.  Greater China replaced the United States as the second largest 
source of Taiwan's imports in 2005.  In H1 of 2007, 14% of Taiwan's 
imports came from Greater China, less than the 21% from Japan but 
more than the 12% from the United States.  Taiwan's imports from 
China are basically cheap consumer goods and parts/components which 
are re-exported after simple processing into finished goods. 
 
¶7.  Taiwan's chronic trade surplus with Greater China increased to 
US$31 billion in H1 of 2007, triple Taiwan's global trade surplus of 
US$10.5 billion. 
 
 
TAIPEI 00001622  002 OF 003 
 
 
USA Remains Major Market for Taiwan Firms 
----------------------------------------- 
 
¶8.  The United States was still a major market for Taiwan companies, 
although the U.S. share of Taiwan's exports in H1 of 2007 declined 
to 13.5% from 14.6% a year earlier and from nearly 50% 20 years ago. 
 One main cause behind the drastic decline has been many Taiwan 
firms' relocation of their export bases to China.  Many of them 
receive orders in Taiwan and ship the products directly from their 
factories in China. 
 
¶9.  The United States remains a major supplier of grains, beef, 
production inputs and production technologies to Taiwan.  However, 
technology transfer over the past five years has reduced Taiwan's 
reliance on imports from the United States.  Even so, Taiwan is 
still a major importer of U.S. corn, wheat, soybeans, and beef. 
Consequently, the U.S. share of Taiwan's imports in H1 of 2007 was 
12%, slightly up from 11% a year ago but far less than 18% in 2000. 
 
¶10.  Taiwan enjoyed a chronic trade surplus with the United States. 
However, the trade surplus in H1 of 2007 dropped 44% to US$2.8 
billion from a year ago, resulting from a 19% growth in imports and 
a 1% decline in exports to the United States.  The 19% growth in 
imports from the United States could be attributed to shipment of 
three jumbo jets, semiconductor manufacturing equipment, and 
chemical goods. 
 
Japan: Taiwan's Major Source of Imports 
--------------------------------------- 
 
¶11.  In its trade with Japan, Taiwan's large chronic trade deficit 
declined 7.4% in H1 of 2007 to US$14 billion.  Taiwan's exports to 
Japan inched up 2% from a year ago to US$8 billion.  However, 
Taiwan's imports declined 4% to US$22 billion because some 
production inputs and technologies from Japan were substituted by 
sources from the United States and Europe as semiconductors and 
optoelectronics emerged as the backbone of Taiwan's industrial 
sector over the past ten years.   Consequently, Japan's share of 
Taiwan's imports in H1 of 2007 declined to 21% from 23% a year 
earlier.  Japan's share in the mid-1990s was 30%. 
 
Two Emerging Trading Partners: Vietnam and India 
--------------------------------------------- --- 
 
¶12.  Taiwan enjoyed an increase in its trade surplus with Vietnam 
from US$1.8 billion in 2002 to US$4 billion in 2006. 
 
¶13.  In H1 of 2007, Taiwan's exports to Vietnam increased 28% from a 
year ago to US$3 billion, while its imports from Vietnam rose 26% to 
US$0.5 billion.  Vietnam has become Taiwan's sixth-largest export 
market, rising steadily from 15th in 2000.  Gasoline, diesel fuel, 
and other fuel represented 26% of Taiwan's total exports to Vietnam, 
while machinery, iron & steel, plastics, man-made fibers, and 
organic chemicals accounted for another 35%. 
 
¶14.  Taiwan's efforts to promote trade with India have also paid 
off.  Over the past four years, Taiwan's exports to and imports from 
India both grew average of 24% per year.  In H1 of 2007, Taiwan's 
exports to India surged 73.5% from a year ago to US$1.1 billion, 
while its imports from India shot up 62% to US$0.9 billion. 
 
¶15.  India was Taiwan's 16th export market and 12th largest source 
of imports.  About 80% of Taiwan's exports to India in H1 of 2007 
were machinery, electrical & electronic equipment, organic 
chemicals, plastics, and fuel.  Diesel fuel accounted for 10% of 
Taiwan's exports to India.  Meanwhile, three-quarters of Taiwan's 
 
TAIPEI 00001622  003 OF 003 
 
 
imports from India were naphtha minerals, copper, organic chemicals, 
iron & steel, and cotton. 
 
COMMENT 
------- 
 
¶16.  Taiwan turned in a solid trade performance in the first half of 
¶2007.  The double-digit rise in export orders signals that the good 
news should continue throughout the rest of the year.  Even though 
China makes up an ever-larger percentage of Taiwan's total trade, 
Taiwan still relies heavily on the U.S. market, even if much of what 
Taiwan firms sell to the U.S. is shipped from Taiwan-owned factories 
in China, and, increasingly, from Taiwan-owned factories in India 
and Vietnam. 
 
YOUNG