VZCZCXRO2787
RR RUEHGH
DE RUEHIN #2558/01 3380705
ZNR UUUUU ZZH
R 040705Z DEC 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 7502
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCPDOC/USDOC WASHDC
RUEHBK/AMEMBASSY BANGKOK 3899
RUEHBJ/AMEMBASSY BEIJING 7487
RUEHUL/AMEMBASSY SEOUL 9080
RUEHGP/AMEMBASSY SINGAPORE 7072
RUEHKO/AMEMBASSY TOKYO 9293
RUEHML/AMEMBASSY MANILA 0204
RUEHJA/AMEMBASSY JAKARTA 4148
RUEHKL/AMEMBASSY KUALA LUMPUR 3830
RUEHHI/AMEMBASSY HANOI 3407
RUEHBY/AMEMBASSY CANBERRA 4653
RUEHWL/AMEMBASSY WELLINGTON 1919
RUEHHK/AMCONSUL HONG KONG 8773
RUEHGH/AMCONSUL SHANGHAI 1503
RUEHGZ/AMCONSUL GUANGZHOU 0687

UNCLAS SECTION 01 OF 03 TAIPEI 002558 
 
SIPDIS 
 
SIPDIS 
 
STATE PLEASE PASS USTR 
STATE FOR EAP/RSP/TC, EAP/EP 
USTR FOR KATZ AND STRATFORD 
USDOC FOR 3132/USFCS/OIO/EAP 
TREASURY FOR OASIA/TTYANG AND HAARSAGER 
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 SENV TW
SUBJECT: Taipei Economic Brief for November 2007 
 
¶1.  Summary.  This cable summarizes selected November 2007 economic 
events in Taiwan.  Unexpected export boom raises Taiwan's 2007 real 
GDP growth forecast by nearly 1%....Less optimism for growth in 
2008.... Blame typhoons for pushing inflation to a temporary 14-year 
high....Taiwan sets a goal to improve energy efficiency by 33%.... 
Taiwan to become world's top TFT-LCD producer in 2007....Nissan to 
locate one of its international design centers in Taiwan.... 
Taiwan's resource recycling industry developing quickly....Big 
potential in solar photovoltaic industry....END SUMMARY. 
 
Upward Adjustment of 2007 Economic Growth 
----------------------------------------- 
¶2.  In late November, the Directorate General of Budget, Accounting 
and Statistics (DGBAS) raised Taiwan's 2007 economic growth estimate 
by nearly one percentage point to 5.46%.  An unexpected rise in 
exports is credited for most of the revision.  Actual year-on-year 
(y-o-y) export growth in the third quarter (Q3) was 9.7%, as opposed 
to the 5.8% which had been predicted in July.  The rise was even 
more dramatic for the month of October, which saw y-o-y export 
growth of 14.4%, more than double the 6.8% projected for Q4. 
Manufacturing output also accelerated throughout the year, 
increasing 1.1% in Q1 y-o-y, 6% in Q2, 11.8% in Q3 and 17.4% in 
October - a four year high. 
 
¶3.  This growth translated into profit increases for Taiwan 
companies.  Dividends distributed by large companies in the first 
ten months grew 20% y-o-y, and growth in after-tax profits 
accelerated from 12.7% in Q1 to 36.5% in Q2 and 38% in Q3.  Earnings 
by such industries as flat panels, DRAM, petrochemicals, and cement 
in the first ten months grew 50-100%.  In the service sector, 
financial institutions also enjoyed handsome growth in earnings due 
to brisk sales of mutual funds.  At their peak in September, Taiwan 
stock prices were up more than 40% over the 12 month period, 
although prices have since declined.  Not surprisingly, domestic 
spending has finally started to increase slowly.  Credit card loans 
returned to growth in 2007, with the y-o-y growth rate accelerating 
from nil in Q1 to 1.2% in Q2, and 5.2% in Q3.  Private investment is 
also accelerating - albeit slowly - up from 0.3% in 2005 and 3.0% in 
2006 to an estimated 5.1% for 2007, to meet the needs of business 
expansion, especially in the capital-intensive semiconductor and 
TFT-LCD industries. 
 
Slower Growth in 2008 
--------------------- 
¶4.  DGBAS forecasts a more modest 4.53% GDP growth rate for 2008. 
With high commodity prices and the impact of the sub-prime crisis, 
forecasters are expecting a downturn in both the U.S. and Europe. 
This would directly effect Taiwan's export-driven economy.  DGBAS 
forecasts Taiwan's export growth in 2008 will slow to 6% and that 
private investment growth will also decline. 
 
Typhoon Inflation 
----------------- 
¶5.  Typhoon Sepat in September and Typhoon Krosa in October severely 
damaged produce farms, driving Taiwan's consumer price index to rise 
by 3.1% y-o-y in September and 5.3% in October, the highest increase 
in 14 years.  This is largely due to the impact of higher food 
prices, which rose 15% y-o-y in October.  The vegetable price index 
shot up 80%, with prices of such products as cabbage, cucumber, 
tomatoes, green onions, and eggplant more than doubling.  Produce 
prices have since returned to normal levels.  The overall inflation 
rate will decline, but is expected to remain above 2% over the next 
3-to-6 months due to higher prices of imported grains, dairy 
products, and crude oil.  Poor weather in Australia, for example, 
pushed up prices of dairy products by more than 10%, as Australia is 
Taiwan's major supplier.  To stabilize prices, Taiwan authorities 
adopted a series of measures, including emergency imports of 
 
TAIPEI 00002558  002 OF 003 
 
 
vegetables, temporary freezing of gasoline prices, and increased 
credit lines for grain imports.  Law enforcement agencies even 
launched anti-trust investigations to crack down on any price 
manipulation and collusion. 
 
Energy Efficiency 
----------------- 
¶6.  Economic Minister Steve Chen announced in mid-November that 
Taiwan had set a goal to improve energy efficiency by 33% by 2025. 
To help achieve this target, Taiwan has provided 200 major energy 
users with energy-saving assistance.  Taiwan is also encouraging 
development of clean energy, such as solar energy, wind power, and 
bio-fuel.  MOEA's target is to increase renewable energy capacity to 
15% of Taiwan's total energy supply by 2025.  Currently, 155 wind 
turbines are under construction and will be completed by the end of 
this year.  Many domestic companies are entering the solar energy 
generation industry, and solar power, if MOEA targets are realized, 
will produce 1.2 billion kilowatt hours of electricity by 2025. 
 
Taiwan World Leader in Flat Panel Production 
-------------------------------------------- 
¶7.  Taiwan will become the world's number one producer of TFT-LCD 
flat panel displays and account for 43% of the global market share 
this year, according to the Market Intelligence Center (MIC) of the 
Institute for the Information Industry (III).  South Korea will 
follow closely with a 40% share.  As flat panel prices drop and 
orders increase, Taiwan's flat panel deliveries will set a record 
high of 15.5 million units, an increase of 51.3% over 2006.  The MIC 
projected that Taiwan will remain the world top producer in 2008 
with a 42% world market share. 
 
Nissan Opens Global Design Center in Taiwan 
--------------------------------------------- ----- 
¶8.  Nissan and its manufacturing partner Yulon Motors set up a new 
design center in Taiwan.  The Yulon-Nissan Design Center, which 
covers nearly 3,300 square meters and built at a cost of NT$340 
million (US$10.5 million), will join the ranks of Nissan's six major 
design studios in Japan, the US, and the UK to create 
next-generation vehicle designs.  In the future, Taiwan's design 
blueprints will serve as models for new vehicles aimed at the 
markets of Japan, Taiwan, Mainland China, the US, and Europe.  The 
opening of the center marks Taiwan's first global automotive design 
opportunity. 
 
Resource recycling Industry 
--------------------------- 
¶9.  Taiwan's resource recycling industry has enjoyed rapid growth 
over the past several years.  Its output increased from NT$24.9 
billion in 2002 to NT$38.5 billion in 2006 and is expected to reach 
NT$40 billion (US$1.2 billion) this year, according to an estimate 
of the Industrial Development Bureau (IDB).  Taiwan recycled 10.81 
million tons of industrial waste and recovered 75% of the wastes, 
which has lowered costs due to environmental degradation by NT$30.35 
billion (US$0.9 billion) a year.  One factor behind development of 
the recycling industry has been a steady rise in prices of precious 
metals.  This has prompted a growing number of Taiwan companies to 
engage in extracting precious metals from industrial wastes. 
Recently, major resource recycling manufacturers such as World 
Resources Company of the US and Tanaka Precious Metals of Japan 
established operations in Taiwan. 
 
Great Potential for Taiwan's Solar PV Industry 
--------------------------------------------- - 
¶10.  Taiwan has set a goal to make solar energy the next "trillion 
NT$" industry on the island.  The Ministry of Economic Affairs 
(MOEA) projects that Taiwan will be the world's fourth-largest solar 
cell producer in 2007.  Taiwan's solar photovoltaic (PV) industry 
 
TAIPEI 00002558  003 OF 003 
 
 
output grew from NT$7 billion (US$215 million) in 2005 to NT$21.2 
billion (US$646 million) in 2006, which accounted for 2% of global 
output.  The MOEA projected the output of this industry in 2007 will 
surge 89% to NT$40 billion (US$1.2 billon), and that the figure will 
reach NT$150 billion (US$4.6 billion) in 2010.  Taiwan's strong 
semiconductor industry gives it an advantage in developing solar 
power that uses crystalline silicon.  Taiwan's strong TFT-LCD 
industry base will be used to develop thin-film solar panel 
technology. 
 
YOUNG