Cablegate: Economic Briefing for February 2005

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

UNCLAS SECTION 01 OF 03 TAIPEI 000962

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

E.O. 12958: N/A
TAGS: EINV EFIN ECON PINR TW
SUBJECT: Economic Briefing for February 2005

1. This cable summarizes selected recent economic events in
Taiwan in February 2005:

--Cross-Strait charter flights for cargo

--WTO and anti-dumping measures

--Key economic indicators for January 2005

--NT dollar appreciation

-- High-tech firms post huge sales growth

--Boeing contracts Taiwan aerospace firm to refit 747's

Cross-Strait Charter Flights for Cargo
--------------------------------------

2. During the Taiwan Investors Spring Festival on February
16, 2005, President Chen Shui-bian announced government
plans to promote cross-Strait cargo flights. Cargo flights
would follow the pattern of the non-stop passenger charter
flights during the 2005 Lunar New Year Holiday and pass
through Hong Kong or Japanese airspace but without any
intermediary stop. In addition, Premier Frank Hsieh
expressed his interest in expanding cross-Strait marine
cargo transportation to and from Kaohsiung's Free Trade Port
Zone. The expanded program would permit imports from China
and processing of such imports for re-exports from the zone.
In response, China's Taiwan Affairs Office (TAO) offered to
consider another round of holiday charter flights, but did
not reply to the offer of regular cargo flights. On
February 25, Taiwan's Mainland Affairs Office rejected the
TAO call to consider another round of holiday charter
flights and criticized the lack of any "substantive"
response to Taiwan's offer of regular cargo flights. (Note:
Hu Jintao's March 4 "Four Points" speech on Taiwan included
the statement that "Non-governmental trade organizations on
both sides of the Taiwan Strait may exchange views on
providing cross-Strait cargo charter flight service." End
note.)

Taiwan's Role in FAN
--------------------

3. Taiwan has been an active participant in activities
organized by the "Friends of Anti-Dumping Negotiation"
(FAN), an informal group of WTO members formed three years
ago opposed to the excessive use of anti-dumping measures.
FAN seeks to remedy what it sees as overly relaxed criteria
used by some economies in assessing import damages to
domestic industries. A Taiwan delegation headed by Deputy
Director General of the Board of Foreign Trade James Wu
attended a FAN brainstorming meeting at the South Korean
Mission in Geneva prior to a WTO Anti-Dumping Committee
session February 22-25. The FAN agenda included an action
plan for 2005 designed to reduce frequency, magnitude,
scope, and duration of anti-dumping measures. Also covered
in the agenda were efforts to win support from non-FAN
members and methods of dispute settlement.

4. FAN includes 17 members -- Hong Kong, Japan, South
Korea, Singapore, Thailand, Chinese Taipei, New Zealand,
Norway, Switzerland, Turkey, Canada, Brazil, Chile,
Columbia, Costa Rica and Mexico. South Korea, Chinese
Taipei and Japan have each been the target of over 100 anti-
dumping investigations over the past decade.

January Statistics Skewed by Seasonal Factors
---------------------------------------------
5. Taiwan's exports and industrial production statistics
for January show substantial year-on-year growth. This
apparent growth resulted mainly from the fact that in 2004
the Lunar New Year holiday fell in January, while in 2005
this nine-day holiday fell in February. Dr. Chou Chi,
Director of the Economic Forecasting Center of the Chunghua
Institution for Economic Research (CIER), predicted that
exports and industrial production in February 2005 would
post drastic drops because of the long holiday. Dr. Chou
indicated that this "seasonal factor" could be removed by
comparing combined statistics for January and February 2005
with corresponding figures a year earlier.

Economic Slowdown to Continue
-----------------------------

6. In late February 2005, the Directorate General of
Budget, Accounting and Statistics (DGBAS) adjusted downward
Taiwan's 2004 economic growth from 5.93% estimated in
November 2004 to 5.71%. The DGBAS also reduced its forecast
for 2005 economic growth from 4.56% forecast in November
2004 to 4.21%. Deputy Director of the DGBAS Statistical
Bureau Tsai Hung-kun attributed the downward adjustments
mainly to appreciation of the NT dollar (NTD) which rose
from over NT$34 per US dollar (USD) in the middle of 2004 to
NT$31 per USD in late February 2005. According to Director
General Tsai, China's currency peg to the USD has prompted
some Taiwan manufacturing firms to shift production from
their plants on Taiwan to production bases in China. He
anticipated export growth would slow from a double-digit
rate in 2004 to a single-digit level in 2005. He also
expected private investment growth to slow from over 30% in
the first half of 2004 to 8% in Q3 2005 and 4% in Q4 2005.
The real GDP growth forecast for the first half of 2005 is
now 4.1%, compared with 7.3% real GDP growth achieved in the
first half of 2004.

HSIP Keeps Laying Golden Eggs
-----------------------------

7. Manufacturing firms located at Taiwan's Hsinchu Science-
based Industrial Park (HSIP) reported a whopping growth of
27% in their combined sales revenues to reach a total of
NT$1,859 billion in 2004. Integrated circuit (IC) companies
generated the bulk of the park's sales revenues accounting
for 68.5% or NT$744.1 billion. Among the six component
industry categories in the park, precision machinery
manufacturers posted the highest growth of 60%.
Optoelectronics makers and IC companies enjoyed the second
highest growth of 39%. Computer and computer peripheral
makers and telecom manufacturers saw growth of 3% and 10%,
respectively.

8. Exports from HSIP in 2004 grew 27% to NT$495.8 billion
while imports shot up 77% to NT$392.8 billion. The top five
export destinations in 2004 were: China 20%; Hong Kong 20%;
Japan 12%; the United States 11%; and South Korea 9%. Major
sources of imports to HSIP remained the United States and
Japan, accounting for 37% and 20% of the HSIP's total
imports. The other top sources were Singapore 8%, Hong Kong
7%, and South Korea 3%.
EVA Subsidiary to Refit 747's for Boeing
----------------------------------------

9. Boeing has contracted Evergreen Aviation Technologies
Corporation (EGAT), a subsidiary of the EVA Airways
Corporation, to refit three 747 passenger planes as special
747-400 large cargo freighters (LCFs). These LCF's will be
used to transport large components of Boeing's newly
designed 787 Dreamliners from France, Japan, and the United
States to the 787's assembly site in Spain. This deal marks
a significant advance for Taiwan's aerospace industry and
establishes a foundation for future aircraft refitting
projects. The design of the 747 LCF is considered one of
Boeing's most valuable corporate secrets. Boeing's decision
to work with EGAT not only reflects Boeing's confidence in
Taiwan's technological capabilities but also in EGAT's
ability to protect the intellectual property involved.

10. The refitting will be carried out at the EGAT
facilities at Taipei International Airport. A Boeing press
release estimated the cost of refitting each aircraft at
US$25 million. The first of the 747's slated for refitting
was just purchased by Boeing from Taiwan's China Airlines in
December 2004. EGAT and Boeing signed a refitting contract
on February 18 in Taipei.
PAAL

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