VZCZCXRO7318
PP RUEHCN RUEHGH RUEHVC
DE RUEHIN #2505/01 3240708
ZNR UUUUU ZZH
P 200708Z NOV 07 ZDK CTG MANY SVCS ZDK
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC PRIORITY 7414
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHBK/AMEMBASSY BANGKOK 3886
RUEHBY/AMEMBASSY CANBERRA 4644
RUEHML/AMEMBASSY MANILA 0195
RUEHGP/AMEMBASSY SINGAPORE 7059
RUEHKO/AMEMBASSY TOKYO 9254
RUEHWL/AMEMBASSY WELLINGTON 1910
RUEHCHI/AMCONSUL CHIANG MAI 0327
RUEHHM/AMCONSUL HO CHI MINH CITY 0155
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 TAIPEI 002505 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USTR, STATE FOR EAP/TC,USTR FOR STRATFORD AND 
KATZ, TREASURY FOR OASIA/TTYANG, COMMERCE FOR 
4431/ITA/MAC/AP/OPB/TAIWAN 
 
E.O. 12958: N/A 
TAGS: ECON EINV ETRD EFIN PREL TW
SUBJECT: TAIWAN ENJOYS STRONG FOREIGN INVESTMENT INFLOWS 
 
TAIPEI 00002505  001.2 OF 002 
 
 
¶1. (SBU) SUMMARY. Taiwan attracted roughly $24 billion in 
foreign direct investment (FDI) in 2006 and the first nine 
months of 2007, adding to a total of nearly U.S. $89 billion 
in cumulative FDI since 1952. Taiwan's attractiveness as an 
international mergers and acquisitions destination is based 
in part on solid corporate balance sheets and a relatively 
high number of family-owned firms seeking foreign partners. 
The U.S. is Taiwan's single largest foreign investor, with 
nearly U.S. $16 billion in cumulative investment, followed 
closely by Japan.  Caribbean tax havens and EU member 
countries are other significant sources of FDI.  Foreign 
investment is concentrated in the electronics, finance and 
insurance, and wholesale/retail sectors. END SUMMARY. 
 
------------------------------ 
Investor interest stays strong 
------------------------------ 
¶2. (SBU) According to Berton Chiu, Director General of the 
Ministry of Economic Affairs' Department of Investment 
Services (DOIS), total new foreign direct investment inflows 
into Taiwan reached a record of about US $14 billion in 2006, 
and totaled roughly $10 billion through the end of September 
¶2007.  Foreign investors are increasingly focusing on the 
banking, telecommunications, and retail sectors, he 
explained, as well as R&D-intensive manufacturing.  Most FDI 
is driven by market-based mergers and acquisitions (M&A) 
activity, said Chiu, rather than the Taiwan authorities' 
efforts to target specific companies or sectors. (NOTE: M&A 
investment is typically less associated with job creation and 
industrial capacity expansion than "greenfield" investment in 
new facilities.) Separately, Morgan Stanley Taiwan chairman 
Gary Kuo told us that Taiwan's foreign equity deals totaled 
approximately $6 billion in the year through September, 
second in the region only to Australia.  Most of this total 
comes from U.S. investors, he added.  Some financial analysts 
have noted that Taiwan firms' relatively low price/earnings 
ratios make them attractive prospects compared with other 
markets in the region.  Since Taiwan has a relatively large 
number of family-owned small- and medium-sized enterprises, 
observed Chiu, second- or third-generation family managers 
often turn to foreign investors to help improve their firms' 
comeptitiveness.  DOIS is trying to elicit foreign investor 
interest in Taiwan's broadband, digital information 
technology, health care, and renewable energy sectors, added 
Chiu.  In a separate meeting, Taiwan Institute for Economic 
Research (TIER) President David Hong said electronics, 
finance/insurance, and wholesale/retail remain the major 
sectors of interest to foreign investors. 
 
----------------------------------------- 
U.S., Japan are the top foreign investors 
----------------------------------------- 
¶3. (U) The United States is the single largest foreign 
investor in Taiwan.  Based on Taiwan official statistics, 
U.S. firms invested a total of U.S. $15.846 billion in Taiwan 
between 1952 and September 2007, giving the U.S. nearly 19 
percent of the total $84.85 billion invested in Taiwan during 
the period.  Japan comes next, at nearly $15 billion, or 
about 18 percent.  DOIS staff told us that the U.S. has been 
the leading foreign investor for about ten years, surpassing 
Japan, the previous leader.  British Caribbean territories 
account for $14.3 billion, or nearly 16 percent, of foreign 
investment, although official and private contacts indicate 
it is extremely difficult to determine the actual source of 
investments channeled through these tax havens.  The 
Netherlands is the source country for $13.2 billion in FDI, 
or almost 16 percent of the total.  Other major foreign 
investors include Singapore, with around 6 percent of total 
FDI, the UK, at 5.55 percent, and Hong Kong, with nearly 4 
percent. 
 
¶4. (SBU) In Chiu's analysis, use of tax havens may 
significantly affect both inbound and outbound investment 
statistics.  Taiwan's double taxation avoidance agreement 
with the Netherlands, for example, artificially increases the 
amount of Dutch investment in Taiwan as companies from other 
EU members take advantage of the agreement's tax preferences 
 
TAIPEI 00002505  002.2 OF 002 
 
 
by incorporating in the Netherlands before investing in 
Taiwan.  In the past, said Chiu, Taiwan companies often 
favored Caribbean tax havens, but many have shifted to Hong 
Kong in order to avail themselves of beneficial tax 
harmonization measures between Hong Kong and the PRC. 
Although Taiwan bans all investment from the mainland, Chiu 
noted it is virtually impossible to determine to what extent 
PRC investment reaches Taiwan via third-country tax havens. 
That analysis was echoed by TIER's Hong, who said it is 
difficult to tell the nature or amount of any mainland 
Chinese investment in Taiwan. 
 
¶5. (SBU) According to Taiwan data, 16 percent of foreign 
investment is concentrated in the electronic component 
sector, followed by almost 15 percent in finance and 
insurance, and 9.5 percent in wholesale/retail.  The other 
major sectors are roughly equally divided between computer 
products, power generation, financial holding companies, 
information and telecommunication equipment, professional 
services, and chemicals, as well as both metal- and non-metal 
maufacturing. 
Looking to the future, Chiu expressed concern that Taiwan's 
avid competition with South Korea to attract foreign 
investment will only intensify if the U.S.-Korea FTA enters 
into force.  Chiu worried that the FTA may prompt U.S. 
companies to tip the balance in favor of investing in Korea 
over Taiwan, especially in high technology sectors where the 
two economies have substantial levels of overlap. Based on 
IMF data through 2006, FDI accounts for 21.6 percent of 
Taiwan's GDP, versus 13.2 percent in South Korea.  South 
Korea attracted $6.3 billion in FDI in 2005, and $3.6 billion 
in 2006.  FDI plays a much more significant role in the 
city-state entrepots of Singapore and Hong Kong, accounting 
for 253.6 percent and 537.4 percent of GDP, respectively. 
 
¶6. (SBU) COMMENT. Taiwan's investment climate is not always 
ideal.  Earlier this year, for example, a major U.S. private 
equity firm scuttled its planned purchase of a Taiwan 
technology company, reportedly after Taiwan authorities 
expressed informal concern that the purchase would involve 
de-listing the company from the stock market, as well as 
allow it to circumvent restrictions on mainland investment. 
In general, however, Taiwan remains an attractive destination 
for foreign investment, as witnessed by the recent strong 
performance of inbound FDI.  Greater cross-Strait 
integration, which will be likely no matter who wins the 
presidential election next March, will probably only increase 
foreign investor interest. END COMMENT. 
YOUNG