US embassy cable - 05TAIPEI268

UNCLAS SECTION 01 OF 03 TAIPEI 000268 
 
SIPDIS 
 
DEPT PASS TO AIT/W 
 
DEPT FOR EAP/ TC 
 
 
E.O. 12958: N/A 
TAGS: ECON, PREL, ETRD, EINV, EWWT, CH, TW, Cross Strait Economics 
SUBJECT: CROSS-STRAIT ECONOMIC ROUNDUP - FOURTH QUARTER 
2004 
 
REF: A) 04 TAIPEI 84, B) 04 TAIPEI 2592, C) 04 TAIPEI 
 
3323 
 
 
Summary 
------- 
 
1.  Taiwan chipmakers PowerChip and ProMos submitted 
applications to Taiwan's Ministry of Economic Affairs (MOEA) 
Investment Commission for permission to build semiconductor 
manufacturing facilities in the PRC.  If approved these two 
plants together with Taiwan Semiconductor Manufacturing 
Co.'s (TSMC) plant near Shanghai will fill the quota imposed 
by MOEA for this type of investment.  Taiwan Formosa Plastic 
Group also submitted a naptha cracker investment application 
to PRC authorities even though this category of investment 
has not yet been legalized by Taiwan.  The Taiwan government 
further liberalized the operations of Taiwan financial firms 
in the Mainland and import restrictions on PRC goods.  Four 
Taiwan firms announced additional investment in cooperation 
with the Xiamen City Government to develop Xiamen's aviation 
facilities.  (End Summary.) 
 
Investment 
---------- 
 
2.  Both PowerChip and ProMos submitted applications the 
last week of December to Taiwan's MOEA Investment Commission 
for permission to build eight-inch wafer semiconductor 
manufacturing facilities in the PRC.  The Investment 
Commission had previously announced that it would approve 
only three applications for semiconductor manufacturing in 
the Mainland.  With TSMC's plant, which was initially 
approved in 2003, approval of the new applications will fill 
the quota. Powerchip did not reveal the amount of its 
proposed investment, but ProMos indicated it planned to 
invest approximately USD 800 million.  The Investment 
Commission will review the application to ensure the two 
firms meet all the requirements, particularly the required 
investment in twelve-inch wafer manufacturing in Taiwan. 
Local media speculated that ProMos's application might face 
difficulty due to its financial situation and a lawsuit 
involving its parent company, Mosel Vitelic Inc. 
 
3.  On October 30, Taiwan Formosa Plastic Group (TFP) 
submitted its naphtha cracker investment proposal to PRC 
authorities for approval.  TFP plans to build a plant in 
Ningpo with the capacity to produce 1.2 million tons of PVC 
per year.  Because Taiwan has not yet legalized this type of 
investment in the PRC, TFP said it would not proceed with 
the investment until Taiwan authorities had also approved 
it. 
 
Finance 
------- 
 
4.  During the fourth quarter of 2004, the Taiwan government 
took two steps further liberalizing the activities of Taiwan 
financial firms in Mainland China.  The Mainland Affairs 
Council (MAC) announced on November 29 that securities and 
futures companies would be permitted to set up branch 
offices in the PRC and one month later announced that Taiwan 
financial holding companies could set up representative 
offices in the PRC.  The PRC also made progress toward cross- 
Strait financial liberalization.  On December 30, the PRC 
approved a request from Cathay Financial Holding Co., 
Taiwan's biggest financial services provider, to offer 
insurance services in China.  Cathay Financial will provide 
these services through a joint venture with China Eastern 
Air Holding Co. 
 
 
Trade 
----- 
 
5.  During the quarter, Taiwan's Board of Foreign Trade 
(BOFT) lifted imports bans for 18 PRC products, including 
certain types of soaps, building stones, metal alloys, and 
motors. 
 
6.  Although Taiwan has not lifted import bans for PRC 
mobile phones, PRC's leading mobile phone name brand, Bird 
International Company, reached an agreement with a Taiwan 
company to import its products via Malaysia with Malaysian 
product of origin certificates.  Bird is the first mainland 
mobile phone manufacturing firm to sell its products in 
Taiwan under its mainland name brand.  At least four other 
PRC mobile phone manufacturers sell their products in Taiwan 
under a different brand name. 
 
7.  On November 15, the PRC announced that it would impose 
20-74 percent antidumping taxes on ethylene glycols (EG) 
imports from Taiwan, Japan, the U.S., Mexico, Germany, and 
two other countries.  Ethylene glycols are used in anti- 
freeze and de-icing solutions.  According to Taiwan's BOFT, 
the PRC is Taiwan's largest ethylene glycols export market, 
accounting for 79 percent of Taiwan's global EG exports. 
 
Transportation 
-------------- 
 
8.  On October 7, Taiwan's China Airlines (CAL), EVA 
Airways, Far East Air Transport Corp., Taiwan Airport 
Service Co., Ltd and Xiamen City government announced they 
would together build a bonded warehouse at Xiamen's airport. 
Investment by the four Taiwan companies totals USD 6.8 
million, giving them a 49 percent stake with Xiamen City 
Government holding the rest.  These five entities had 
previously cooperated to finance the Xiamen Air Cargo 
Terminal, which was inaugurated in September. 
 
9.  The PRC's China Eastern Airlines and CAL initiated a 
joint service from Shanghai to Taipei via Laoag, the 
Philippines, in November.  China Eastern Airlines provides 
Shanghai-Laoag service and CAL connects Laoag and Taipei. 
The overall flying time is 4 hours and the cost is NTD 
8,000, about half the cost of transit via Hong Kong or 
Macao. 
 
Travel Policy 
------------- 
 
10.  Two events marked further relaxation of restrictions on 
Mainland Chinese travel to Taiwan.  After the PRC's Fujian 
province announced in September that Fujian residents would 
be permitting to travel to Taiwan's Kinmen for tourism, the 
first group of 55 Fujian tourists arrived December 7 via the 
mini-links.  On November 1, while announcing the 
appointment, Chen Chung-hung as the Director of the Taipei 
Economic and Cultural Center in Macao, MAC Chairman Joseph 
Wu also announced that MAC will soon launch online visa 
applications for residents of Hong Kong and Macau who wish 
to visit Taiwan. 
 
Exchanges 
--------- 
 
11.  On October 17, Taiwan's former Vice Finance Minister 
Day Li-nin for the first time attended an International 
Advisor Committee meeting for the Beijing-based China 
Securities Regulatory Commission as an advisor.  The meeting 
discussed the development and risk management of the PRC's 
securities market.  Taiwan's MAC is studying whether Day's 
position as an advisor to this institution is prohibited 
under Taiwan law or would require prior approval from the 
Taiwan government.  While the China Securities Regulatory 
Commission is directly under the PRC's State Council, it 
remains unclear whether the affiliated International 
Advisory Committee meets the definition of an "official" 
organization. 
 
12.  After waiting more than five months, Pao Cheng-Kang, 
Taiwan's new representative to Hong Kong, was granted a visa 
in mid-October and assumed his post as Managing Director of 
the Chung Hwa Travel Service in Hong Kong. 
 
13.  Frequent cross-Strait exchanges between businesses and 
academic institutions continued during the quarter. 
Highlights, involving government officials, include the 
following: 
 
--  Taiwan's Financial Supervisory Commission (FSC) Deputy 
Director Susan Chang led a delegation of senior financial 
officials from the Council for Economic Planning and 
Development, the Central Bank of China (CBC) and MAC to 
Dalian for the tenth Cross-Strait Financial Academic 
Conference October 24-28. 
 
--  Taiwan's Lienchiang County Commissioner Chen Hsueh-sheng 
led a delegation to Fuzhou October 26 and learned from 
Fujian Deputy Governor Wang Mexiang details of Fujian's plan 
to liberalize travel for Fujian residents to Kinmen and 
Matsu. 
 
--  Li Xiaoyun, Director of the Center of Cross-Strait 
Economic & Science Cooperation (CSESC) of the PRC State 
Council's Taiwan Affairs Office, and Feng Zhuozhi, President 
of China Sunrise Travel Service (CSTSTOUR) visited Taiwan to 
attend the Taipei International Tourism Exhibition on 
November 10. 
 
--  Jiangsu Intellectual Property Office (IPO) Director 
General Zhu Yu attended the 2004 Taiwan-Jiangsu IPR 
conference held in Taiwan on December 8.  Taiwan's IPO 
Deputy Jack Lu also attended the conference. 
PAAL