US embassy cable - 05TAIPEI1594

C O N F I D E N T I A L SECTION 01 OF 02 TAIPEI 001594 
 
SIPDIS 
 
DEPT FOR EAP/TC 
DEPT PLEASE PASS AIT/W, USTR 
 
E.O. 12958: DECL: 03/31/2015 
TAGS: ETRD, ECON, EINV, TW, CH, Cross Strait Economics 
SUBJECT: CROSS-STRAIT TRADE - TAIWAN'S SURPLUS GROWS, 
INFLUENCE SHRINKS 
 
REF: TAIPEI 1191 
 
Classified By: AIT Director Douglas H. Paal, Reason 1.5 b 
 
Summary 
------- 
 
1. (C) Taiwan's exports to the PRC grew by 27.2 percent in 
2004 as its imports from the Mainland grew even more rapidly 
at 52.2 percent.  Components shipped to Taiwan firms 
assembling electronic consumer goods in the PRC dominated 
Taiwan's exports at 57 percent, but similar products also 
made up the majority of Taiwan's PRC imports.  The PRC's 
share of Taiwan's total exports rose again but Taiwan's 
share of PRC imports fell.  It appears likely that South 
Korea will overtake Taiwan as the number two source of PRC 
imports in 2005.  These trends could facilitate the PRC's 
ability to use economic policy to apply pressure to Taiwan's 
government.  End summary. 
 
Exports Rising, Imports Rising Faster 
------------------------------------- 
 
2. (U) Taiwan-PRC trade statistics for 2004 released by 
Taiwan's Board of Foreign Trade (BOFT) show that trade 
between Taiwan and the China grew by a record 33.1 percent, 
the fastest pace since BOFT began tracking such data in 
1993.  Export growth was impressive, rising by 27.2 percent 
to USD 45.0 billion.  Only 1993 saw faster growth in exports 
to the PRC.  However, the percentage increase in imports was 
even higher at 52.2 percent to USD 16.7 billion.  Even as 
Taiwan's trade surplus with the PRC continues to grow in 
dollar terms, it is shrinking as a percentage of total 
Taiwan-PRC trade. 
 
Electronic Components Still Lead 
-------------------------------- 
 
3. (U) Nearly 57 percent of Taiwan's exports to the PRC 
worth USD 25.4 billion consisted of electronics components 
sold mainly to Taiwan firms assembling electronics consumer 
goods in the PRC.  According to Taiwan's Market Intelligence 
Center, a high-tech industry research firm, about 73 percent 
of IT equipment manufactured by Taiwan firms, including 
products in which Taiwan is a world leader such as notebook 
PCs, TFT-LCD monitors, switches and motherboards, were 
assembled in the PRC in 2004.  More surprisingly, the BOFT 
statistics indicate that 54.5 percent of Taiwan's imports 
from the PRC (or USD 9.1 billion) were also made up of 
electronics components.  PRC components exported to Taiwan 
are generally produced by more labor-intensive, 
less-technologically advanced means than the Taiwan 
exports.  The fact that these components dominate trade in 
both directions indicate the complexity and high-level of 
integration of high-tech industries across the Strait. 
 
Shifting Balance 
---------------- 
 
4. (U) Taiwan's dependence on the PRC as a market for 
exports continued to grow.  The PRC accounted for 25.8 
percent of Taiwan's exports last year, compared to 24.5 
percent in 2003 and 22.6 percent in 2002.  If exports to 
Hong Kong are included, China accounts for approximately 35 
percent of Taiwan's imports.  However, Taiwan's share of the 
PRC's imports dropped last year from 12.0 percent in 2003 to 
11.5 percent in 2004 as South Korea's share grew from 10.5 
percent to 11.1 percent.  South Korea was the third largest 
source of PRC imports after Taiwan in 2004, but stands to 
overtake Taiwan in 2005.  Korean firms, which tend to import 
Korean-produced inputs just as Taiwan firms buy Taiwan-made 
components, are investing in Mainland China at a faster 
pace.  PRC data show that Korean firms contracted USD 13.9 
billion worth of investment in the PRC in 2004, compared to 
USD 9.31 billion for Taiwan firms (reported reftel).  South 
Korea's imports to the PRC already surpassed Taiwan's in the 
first month of 2005. 
 
Comment: Future Implications 
----------------------------- 
 
5. (C) If these trends continue, the economies of Taiwan and 
the PRC will grow more and more closely linked.  Taiwan's 
economy depends on the PRC not only as a production base but 
increasingly as a final market for exports, and this will 
continue to grow.  However, the PRC's relative dependence on 
Taiwan could at the same time diminish as other countries 
strive to compete in the PRC market.  If countries like 
South Korea increasingly reduce Taiwan's relative importance 
as a source of investment and imports, the PRC will have a 
freer hand to use its economic policy towards Taiwan for 
political ends.  These trends are likely to increase both 
the PRC's ability and willingness to use economic means to 
pressure Taiwan and, at the same time, diminish Taiwan's 
ability to resist them.  End comment. 
 
6. (U) BOFT cross-Strait trade data for 1993-2004 will be 
posted on the AIT intranet site at 
http://taipei.state.gov/ait_s/econ/econ_web/e condata_main.htm 
PAAL