US embassy cable - 05TAIPEI2026

UNCLAS SECTION 01 OF 03 TAIPEI 002026 
 
SIPDIS 
 
SENSITIVE 
 
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, PINR, TW 
SUBJECT:  Economic Briefing for April 2005 
 
 
Introduction and Summary 
------------------------ 
 
1.  (U) This cable summarizes selected recent economic 
events in Taiwan in April 2005: 
 
--Taiwan Stock Market Up on KMT Trip to China 
 
--New Insurance Director General 
 
--Changhwa Bank Privatization on Hold 
 
--More Funds for High Speed Rail 
 
-- Taiwan Flat Panel Production 
 
--A Flurry of IPR Raids 
 
END INTRODUCTION AND SUMMARY. 
 
 
Taiwan Market Reacts Favorably to KMT Chairman's China Trip 
--------------------------------------------- -------------- 
 
2.  (U) KMT Chairman Lien Chan's April 25-May 3 "journey of 
peace" to Mainland China and his meeting with PRC President 
Hu Jintao gave a small boost to Taiwan business sentiment 
and stock valuations.  Taiwan's TAIEX stock market index 
increased by about 60 points, or about 1.5 percent, during 
the visit.  Stock prices of Taiwan's leading listed 
companies with major investment in China increased by 2.7- 
7.9 percent, indicating slightly increased optimism on cross- 
straits economic relations.  Taiwan's agricultural and 
tourism sectors generally welcomed potential business 
opportunities that could result from the PRC's offer to 
liberalize controls on tourism to Taiwan and eliminate 
import tariffs on 12 Taiwan's fruit exports to the PRC. 
 
Financial Supervisory Commission Insurance Bureau 
--------------------------------------------- ---- 
 
3.  (U) Secretary General of the Financial Supervisory 
Commission (FSC) (Thomas) Huang Tien-mu was promoted to 
Director General of the FSC Insurance Bureau (IB).  Dr. 
Huang replaced Mark Wei, who will join a private financial 
firm.  Huang met with AIT on April 18 to discuss his views 
on Taiwan's insurance industry (septel).  His educational 
background includes a doctorate in public administration 
from the University of Southern California. 
 
Changhwa Bank Privatization on Hold 
----------------------------------- 
 
4. (U) On April 29, the Ministry of Finance (MOF) instructed 
the board of directors of state-owned Changhwa Commercial 
Bank (CCB) to delay announcement of the winning bid and 
bidder for a controlling stake in the company.  The sole 
remaining bidder, an investment consortium headed by Japan's 
Shinsei Bank, reportedly offered NT$13 per share for the CCB 
global depository receipts (GDRs), about 40 percent under 
the average share price in the three months preceding the 
auction.  Taiwan's MOF wants to negotiate further with the 
Shinsei consortium over the price and other arrangements. 
The consortium led by ING Bank gave up its bid in early 
April. 
5.  (U) CCB was slated to become the first Taiwan state- 
owned bank sold to foreign investors.  The CCB planned to 
award 1.4 billion Global Depository Receipt (GDR) shares, 
equivalent to 22% of equity, to the high bidder.  The GDR 
bid winner would then be permitted to purchase another 18% 
ownership stake in CCB directly from the government.  This 
would enable the winning bidder to have effective control 
with a 40% equity stake.  The sale of CCB would meet the 
publicized financial reform goal of selling at least one 
state-owned bank to foreign investors before the end of 
2005. 
 
A Ray of Hope on High-Speed Rail Finance 
---------------------------------------- 
 
6.  (SBU) On April 28 the Taiwan High-speed Rail Company 
(THSRC) successfully raised NT$6.0 billion (USD 190 million) 
additional capital by issuing preferred shares, as called 
for in its eleventh financial plan.  The investors included 
China Steel Corporation with NT$ 3 billion, Fubon Group with 
NT$ 900 million, Evergreen Group with NT$ 500 million, and 
Continental Engineering Corporation with NT$ 400 million. 
With this capital THSRC can continue to borrow funds from 
its bank consortium to finance construction of the railway. 
However, THSRC's plan calls for it to raise another NT$ 7.5 
billion (about USD 240 million) by the end of May through 
preferred stock issuances.  Chairman Earle Ho of Chinese 
National Federation of Industry, who is also a board 
director of THSRC, publicly promised the project would earn 
money in the future.  THSRC and the Ministry of 
Transportation and Communications still indicate the high- 
speed rail will open on time on October 31, 2005, but many 
observers are skeptical.  An engineer on the project told 
AIT/T that THSRC might begin limited special service on 
time, but that full operations were not likely to begin 
before February 2006. 
 
Taiwan Fails to Surpass South Korea in TFT-LCDs 
--------------------------------------------- --- 
 
7.  (U) The Taiwan government has set the goal of surpassing 
South Korea in TFT-LCD production.  However, Taiwan 
producers failed to take the top spot in 2004 as some had 
predicted.  According to Taiwan's Photonics Industry and 
Technology Development Association, Taiwan produced USD 14.4 
billion worth of TFT-LCDs, giving it a 44-percent share of 
the global market last year.  In comparison South Korea took 
46 percent of the market with production valued at USD 16.8 
billion.  Market research firm iSuppli predicts the race 
will be tight in 2005.  Taiwan may have the capacity to 
produce more than South Korea, but component shortages may 
prevent Taiwan firms from producing at capacity.  iSuppli 
predicts Taiwan could overtake South Korea in 2006. 
 
8.  (U) Taiwan is building the capacity to stay competitive. 
Taiwan's AU Optronics Company, the island's largest TFT-LCD 
producer, in April announced plans to invest NT$35 billion 
to build a "7.5-generation" plant.  The plant would focus on 
production of 42- and 47-inch LCD products.  Following AU 
Optronics, Chi Mei Optoelectronics Company announced it 
would build a 7.5-generation and a 5.0-generation TFT-LCD 
flat panel plant.  Output of Chi Mei's 7.5-generation plant 
will be mainly used in televisions while output of the 5.0- 
generation plant will focus on the computer market.  By the 
end of 2005, Taiwan will have 24 TFT-LCD factories to 
Korea's 19. 
 
A Flurry of IPR Raids 
--------------------- 
 
9.  (U) In mid-April, Taiwan's Intellectual Property Office 
(TIPO) announced that the reward for information leading to 
the arrest or indictment of counterfeiters had been raised 
to NT$500,000 from NT$200,000.  Working on a tip from 
Microsoft, Taiwan's Criminal Investigation Bureau (CIB) 
raided a firm and an office near Taipei City and arrested 
four suspects who had allegedly imported bogus Microsoft 
certificates of authentication from Mainland China and then 
sold them to local and foreign buyers.  Taiwan police and 
Ministry of Justice Investigation Bureau (MJIB) conducted 
numerous other raids during April seizing counterfeit Nike, 
Puma, Adidas, Louis Vutton, Chanel and other products with a 
market value of over NT$200 million. 
 
PAAL