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Cablegate: Taiwan Markets Calm After China's Anti-Secession

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 TAIPEI 001029

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

Sensitive but unclassified

E.O. 12958: N/A
TAGS: EINV EFIN ECON PINR TW
SUBJECT: Taiwan Markets Calm After China's Anti-secession
Law

Summary
-------

1. (SBU) Taiwan's financial markets shrugged off China's
"Anti-Secession Law" on March 8. The NT Dollar (NTD)
appreciated against the U.S. dollar (USD), while the stock
market index declined slightly. Foreign portfolio investors
increased net stock purchases. Local economic observers
believe that the law's overall effect on Taiwan's economy
will be slight. END SUMMARY.

Foreign Exchange Market
-----------------------

2. (SBU) Taiwan's foreign exchange market was relatively
calm on March 8, when China's National People's Congress
began consideration of the "Anti-secession Law." The bill,
which has aroused passions among politicians in Taiwan, did
not weaken Taiwan's currency. Instead, the NTD continued
the appreciation trend it has been on throughout the second
half of 2004, gaining another 0.4 NT cents to close March 8
at NT$30.875 per USD. Alex Pan, a senior foreign exchange
trader at Bank of America (BOA), told AIT/T he had not seen
any capital flight as a result of the controversial bill.
He said he expected the NTD to continue to appreciate. Pan
noted that adding to the pressure on the NTD to appreciate
were rumors that the European Union Central Bank plans to
raise interest rates, thus further weakening the USD.

Stock Market
------------

3. (SBU) Despite strong rhetoric from Taiwan officials,
China's Anti-secession Law also did not cause any
significant drop in the stock market in Taiwan on March 8.
The stock market index declined 0.76% from the previous day,
well within the range of daily fluctuation. The decline of
0.76% was after a daily rise of 1.3% for several days in
February as foreign portfolio investors poured capital funds
into Taiwan. The trading volume on March 8 was NT$93.7
billion, comparable to the average daily trading volume of
NT$90.4 billion in the previous ten trading days. On March
8, foreign portfolio investors posted net stock purchases of
NT$5 billion, sending their cumulative net stock purchases
during the first eight days of March 2005 to NT$30 billion.

4. (SBU) SinoPac Securities Company senior consultant Huang
Wen-jur told AIT/T that China's Anti-secession Law had not
caused any panic in Taiwan's stock market. According to
Huang, if there was a panic the stock index would drop 200-
300 points and at least 40-50 issues plunge to the daily
decline limit of 7% below the previous day's closing price.

Financial Markets on Day 2
--------------------------

5. (SBU) On the morning of March 9, both Taiwan foreign
exchange market and stock market both remained calm. The
NTD gained slightly more against the USD, with the NTD:USD
exchange rate fluctuating around NT$30.8 per USD. In the
first hour-and-a-half of trading, the stock price index rose
12.34 points to 6,185.68 points.

Limited Impact on Taiwan
------------------------

6. (SBU) Local observers do not expect China's Anti-
secession Law to have a significant impact on Taiwan's
economy. BOA's Alex Pan told AIT/T that the bill was not a
surprise to the public. Taiwan people have been aware of
the pending legislation for weeks. Pan indicated he
believed that the bill was designed to check militant
factions within Beijing's administration. Wang Ling-ling,
Chairman of Taiwan's General Chamber of Commerce, commented
that contents of the bill were actually "better" (i.e., less
militant) than expected before the bill was published on
March 8. Wang believed that cross-Strait economic relations
would continue improving as non-stop cargo flights get
started across the Taiwan Straits.
PAAL

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