US embassy cable - 05TAIPEI51

UNCLAS SECTION 01 OF 02 TAIPEI 000051 
 
SIPDIS 
 
STATE PLEASE PASS AIT/W AND USTR 
 
STATE FOR EAP/RSP/TC, EAP/EP AND EB/IFD/OIA 
 
USTR FOR SCOTT KI 
 
USDOC FOR 4420/USFCS/OCEA/EAP/LDROKER 
USDOC FOR 3132/USFCS/OIO/EAP/ADAVENPORT 
TREASURY FOR OASIA/ZELIKOW AND WISNER 
TREASURY PLEASE PASS TO OCC/AMCMAHON 
TREASURY ALSO PASS TO FEDERAL RESERVE/BOARD OF 
GOVERNORS, AND SAN FRANCISCO FRB/TERESA CURRAN 
 
E.O. 12958: N/A 
TAGS: EINV, EFIN, ECON, TW 
SUBJECT: TFX001: Taiwan Economic Brief December 2005 
 
 
1.  This cable summarizes selected Taiwan economic events in 
December 2004. 
 
-- Taiwan becomes OECD trade committee observer 
 
-- Taiwan leads world in chip packaging and testing 
 
-- Taiwan worries about over-reliance on China 
 
-- Taiwan's 2004 and 2005 economic performance 
 
-- Taiwan aids tsunami victims 
 
Taiwan Accepted as Project Observer in OECD Trade Committee 
--------------------------------------------- -------------- 
 
2.  The Geneva-based Organization for Economic Cooperation 
and Development (OECD) announced in late December that it 
had accepted Taiwan along with Israel and Romania as project 
observers in its Trade Committee.  Taiwan will be allowed to 
attend specific meetings but will not have the privileges 
and obligations of member economies and will not be required 
to contribute an annual membership fee.  While still 
struggling to become a full-fledged observer rather than a 
project observer, Taiwan considers the project observer 
status a significant step forward in coordinating economic 
policies with OECD members.  Taiwan's Board of Foreign Trade 
Director General Huang Chih-peng noted that the OECD 
position on issues influences WTO decisions, and a presence 
in OECD Trade Committee deliberations allows Taiwan more 
opportunity to coordinate on economic issues that will later 
be negotiated in the WTO.  Taiwan became an observer at the 
OECD Competition Committee three years ago. 
 
Taiwan Tops World's Chip Packaging and Testing 
--------------------------------------------- - 
 
3.  Taiwan's semiconductor chip packaging and testing 
industry surpassed South Korea's in 2004 with growth of 36% 
to become the worlds largest at NT$159.6 billion (US$4.9 
billion at US$1:NT$32).  Taiwan's Industrial Economics and 
Knowledge Center (IEK) estimates the industry's revenue in 
2005 will grow 12% to NT$178.1 billion (US$5.5 billion). 
The slower growth is a reflection of excess global 
inventories of these products.  According to IEK, Taiwan's 
industry leads rivals in advanced ball grid array (BGA) 
technologies for chip packaging and testing services.  IEK 
anticipates the ongoing rapid growth of the industry would 
make Taiwan a promising market for equipment and material 
suppliers.  IEK projects Taiwan's consumption of packaging 
materials will top NT$100 billion (US$3.1 billion) in 2005. 
 
Businessmen Urged to Diversify Overseas Investment 
--------------------------------------------- ----- 
 
4.  Taiwan's Council for Economic Planning and Development 
(CEPD) in December again urged Taiwan businesspeople to 
diversify overseas investments away from China.  CEPD 
suggested Taiwan investors consider India, Bangladesh, Latin 
America, and new members of the European Union as places to 
invest.  According to a CEPD report, China attracted 65 
percent of Taiwan's total overseas investment in the first 
ten months of 2004 and 37 percent of Taiwan's exports went 
to China and Hong Kong.  To reduce over-reliance on China, 
Taiwan is seeking to sign free trade agreements with other 
trading partners and encourages businesses to sell in 
markets other than China by providing incentives such as 
export loans and export insurance. 
 
Economic Performance in 2004 and 2005 
------------------------------------- 
5.  Taiwan's real economic growth in 2004 is expected to 
reach nearly six percent, the highest level in the past 
seven years.   Excess inventories and higher oil prices, 
however, prompted a slowdown in the second half of the year. 
Export growth slowed from nearly 40 percent in May to 12 
percent in November.  Manufacturing growth slipped from 17 
percent in May and June to four percent in October and 
November.  The CEPD and local economic think tanks predict 
private investment will continue to grow in 2005 allowing 
economic growth of around 4.5 percent with relatively stable 
prices.  The consumer price index in 2005 is expected to 
rise 1.8-1.9 percent, up modestly from a rate of 1.5 percent 
in the first 11 months of 2004.  The CEPD is confident 
continued investment growth will reduce unemployment from 
4.14 percent in November 2004 to below four percent in 2005. 
 
Taiwan's Aid to Southeast Asian Nations 
--------------------------------------- 
 
6.  On January 2, 2005, Taiwan's Executive Yuan (EY) 
announced it will increase its official aid to nations 
suffering from recent earthquakes and tsunamis from US$5 
million to US$50 million.  Taiwan's donation will include 
US$20 million in food (2,000 metric tons of rice and 500,000 
boxes of cooked rice), US$15 million of medical supplies, 
and US$15 million for community and port reconstruction.  In 
addition to official aid, dozens of local NGOs have launched 
donation campaigns.  Taiwan's Red Cross collected some US$3 
million in first week after the disaster.  The Buddhist 
Compassion Relief Tzu Chi Foundation mobilized several 
thousands of volunteers to solicit contributions in major 
cities all over Taiwan.  Private citizens in Taiwan have 
donated about US$6 million to a special account created by 
the Ministry of Foreign Affairs.  Taiwan's Department of 
Health (DOH) has organized a medical team of 200 persons 
that will travel to the affected areas.  Taiwan media 
reports that despite being one of the largest donors to 
international relief efforts, Taiwan will not be invited to 
join a planned donors' summit in Jakarta. 
PAAL