Cablegate: Taipei Economic Brief for October 2006
VZCZCXRO7120
RR RUEHGH
DE RUEHIN #3737/01 3060733
ZNR UUUUU ZZH
R 020733Z NOV 06
FM AIT TAIPEI
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RUEHGZ/AMCONSUL GUANGZHOU 9684
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TAGS: EINV EFIN ECON PINR TW
SUBJECT: Taipei Economic Brief for October 2006
1. This cable summarizes selected October 2006 economic events in
Taiwan:
--Economic Performance
--Taiwan 4th in US Patents
--Bank Acquisition through Open Market Trading
--Legislature Reviewing 2007 Budget
--Draft CO2 Emissions Law
--R&D Subsidies for SME
--Fourth Nuclear Power Plant
--CME and TAIFEX Sign MOU
Economy Performs Well
---------------------
2. Taiwan's economy has performed better than expected in the first
nine months this year. Y-o-y export growth accelerated from 12% in
Q1 to 18.6% in Q3, highest in the past two years. Import growth
also increased from 9% in Q1 to 15% in Q3, highest in the past 21
months. Both export growth and import growth in Q3 were higher than
the 7-10% previously estimated by Taiwan think tanks. Export
shipments in the next three to six months are expected to grow
substantially as orders received in Q3 increased at a double-digit
rate, following 21%-growth in the first half of this year. The
manufacturing sector's facility utilization rate in Q3 exceeded the
2005 annual average of 80% and its Q3 profit margin surpassed 5% of
sales. The Chunghua Institution for Economic Research (CIER)
predicted that private investment will grow at 2.9% in Q3 and 4.3%
in Q4, highest in the past two years. Taiwan authorities have
brought delinquent credit/cash card debt problems under control
through a rescheduling mechanism. Private consumption bottomed-out
in Q3 and is expected to grow 2.6% in Q4, highest in the past 18
months. Prices were stable in the first nine months; the consumer
price index inched up only 0.8%. Prices should remain stable in Q4
as international oil prices are declining in the second half of this
year. Unemployment in September declined from 4.09% in August to
3.96%, lowest for the past six months.
Taiwan 4th in US Patents
------------------------
3. Taiwan received 5,991 patents from the U.S. Patent and Trademark
Office last year, ranking fourth in the world for the seventh
consecutive year. Taiwan's ranking moved up to second in terms of
patents approved for every one million people of population. Taiwan
did especially well in semiconductor, LCD, and information
technologies. The number of patents received in semiconductor
technology totaled 820, ranking third, behind only the United States
and Japan. Taiwan's world ranking was third in information storage,
and fifth in such areas as LCD and related technologies, computer
hardware and software technology, and computer peripherals.
Bank Acquisition through Stock Market Trading
--------------------------------------------- -
4. In late September 2006, London-based Standard Chartered Bank
(SCB) obtained permission from Taiwan's the Financial Supervisory
Commission (FSC) to acquire Taiwan's Hsinchu International Bank
(HIB) through open trading in Taiwan's stock market in October. By
the end of October, SCB had obtained nearly total ownership in HIB
and plans to de-list it from Taiwan's stock market. HIB ranks 27th
among Taiwan banks in terms of net worth and has 82 local branches.
In 2006 in addition to SCB's acquisition of HIB, 12 major foreign
investors have acquired significant percentages of equity in six
Taiwan banking institutions through private placement.
Legislature Reviewing 2007 Central Budget
-----------------------------------------
TAIPEI 00003737 002 OF 003
5. On October 2, the Legislative Yuan (LY) began reviewing Taiwan's
proposed 2007 central budget. Expenditures for 2007 will increase
6% from 2006 to NT$1,663.8 billion (US$50.4 billion at an exchange
rate of NT$33 per US$), and the estimated 2007 budget deficit will
decline 19% from 2006 to NT$152 billion (US$4.6 billion). However,
outstanding central public debt will increase from NT$3,555.7
billion (US$107.7 billion) in 2005 to NT$4,040.7 billion (US$122.4
billion) in 2007. The outstanding debt as a share of GNP in 2007
will increase from 33.1% in 2005 to an estimated 35.2%, still below
the statutory limit of 40% and less than the 52.7% in the United
Kingdom, 64.1% in the United States, 66.9% in Germany, and 163.4% in
Japan. While education, science and culture continue to occupy the
largest share of the proposed budget, defense spending will grow 30%
to NT$311.5 billion (US$9.4 billion), mainly on procurements from
the United States.
Draft Law on CO2 Emissions Quotas
---------------------------------
6. On September 20, the Executive Yuan (EY) approved a draft bill
entitled the Greenhouse Gas Reduction Act, which will impose carbon
dioxide (CO2) emission reduction quotas on manufacturing firms in
Taiwan. With the bill, Taiwan joins Switzerland and Japan as the
only economies mandating greenhouse gas reductions and an emissions
quota trading and accounting system. Companies which voluntarily
reduce emissions before passage of the law can credit their
reduction quotas for trading or for use in future investment
projects. Taiwan's Environmental Protection Agency (EPA) will set a
national quota on greenhouse gas emissions, while other agencies set
quotas for industries that they govern and regulate. The bill will
be implemented in stages, starting in 2008 with a registration and
verification system for CO2 emissions, followed by determination of
emissions quotas and a quota trading system.
R&D Subsidies for Small & Medium Enterprises (SMEs)
--------------------------------------------- ------
7. Under the 2006 Small Business Innovation Research Program, the
Ministry of Economic Affairs Department of Industrial Technology
(DOIT) will provide 31 SMEs with R&D subsidies of at least NT$100
million (US$3 million) for each recipient. The 31 SMEs are
principally from electronics, information and telecommunications
(IT), machinery, chemicals, biotechnology, and innovation services.
SMEs comprise 97.25% of Taiwan's manufacturing sector, but often
face a shortage of funding and access to technologies.
Fourth Nuclear Power Plant (FNPP)
---------------------------------
8. The state-owned Taiwan Power Company (TPC) denied a recent press
report that the FNPP will not start operation in July 2009, as
scheduled, because Carrier Engineering failed to honor a bank check
in September. TPC is working with the lending bank in an attempt to
help Carrier resolve its financial problems, and the scheduled date
of completion will remain unchanged.
CME and TAIFEX Sign MOU on Information Sharing
--------------------------------------------- -
9. On October 27, the Chicago Mercantile Exchange (CME) and the
Taiwan Futures Exchange (TAIFEX) signed a memorandum of
understanding (MOU) on information sharing. CME is the world's
largest and most diverse financial exchange, while TAIFEX is a
rising derivatives exchange in the Asia-Pacific Region and the only
derivatives exchange in Taiwan. Taiwan has signed similar MOUs with
eight other foreign futures exchanges, including with the Osaka
Securities Exchange and the Central Mercantile Exchange of Japan
TAIPEI 00003737 003 OF 003
signed in May 2006.
WANG