Commentary

Progress in cross-strait financial relations

The Financial Supervisory Commission announced adjustments on cross-Taiwan strait financial regulations March 16. (CNA)

• Publication Date：04/02/2010
• Source： Taiwan Today
• By  Adela Lin

The March 12 Cabinet decision to ease cross-strait financial regulations paves the way for Taiwan’s banks, insurers and securities houses to raise their presence in mainland China, analysts said.

“These measures will expand the financial sector’s operations, and facilitate negotiations between Taipei and Beijing over even wider market access in the future,” Jacky Tam, vice president of Yuanta Securities Investment Consulting Co. Ltd., said March 25.

The Financial Supervisory Commission, Taiwan’s top financial regulator, announced the adjustment details and the implementation March 16.

While applauding the move, analysts also pointed out that further deregulations are needed. Full normalization will not occur until after the cross-strait economic cooperation framework agreement is signed, they said.

“The latest rules still place restrictions on cross-strait ties, and the financial sector is awaiting further relaxations,” Dexter Hsu, vice president of Asia Financials Research at J.P. Morgan Securities (Taiwan) Ltd., said March 23.

Some of the major adjustments in the ruling include allowing domestic banks to establish branches and subsidiaries in mainland China, and giving them permission to acquire stakes in mainland banks.

At the moment, only nine local banks have established representative offices in the mainland.

A total of 13 domestic banks meet the capital adequacy and operation experience criteria for seeking branches or stake acquisition in the mainland, according to Kuei Hsien-nung, director-general of the Banking Bureau under the FSC.

The new regulations also permit mainland banks to open representative offices in Taiwan and to acquire stakes in local financial institutions.

Five mainland banks meet the capital adequacy and operation experience requirements for opening representative offices on the island. These are the Bank of China Ltd., Bank of Communications Co. Ltd., China Construction Bank Corp., China Merchants Bank Co. Ltd. and Industrial and Commercial Bank of China Ltd.

In addition, mainland securities companies, futures firms and insurers will be permitted to set up representative offices and purchase shares in Taiwan.

The regulatory relaxations received a warm response from the financial community.

Cathay Financial Holding Co. Ltd. President Chen Tsu-pei said March 23 that Cathy United Bank, a subsidiary, will give priority to upgrading its Shanghai representative office to a branch. “We will also study the feasibility of establishing a subsidiary or investing in a mainland bank.”

In addition, the island’s leading financial conglomerate will consider other expansions such as the establishment of an asset management firm in the mainland. The group currently already has a life insurance joint venture as well as a non-life insurance unit there, he added.

Chinatrust Financial Holding Co. Ltd. Chairman Charles L.F. Lo said the group’s wholly-owned Chinatrust Commercial Bank will act aggressively to set up a Shanghai subsidiary. Taiwan Cooperative Bank Chairman Liu Teng-cheng has his eye on opening a branch in Suzhou, Jiangsu Province.

However, industry leaders are calling for authorities across the strait to further scale down the barriers to market access.

“We will accelerate our penetration into the mainland market as soon as the ECFA is inked and provides favorable treatment,” Wang Rong-jou, chairman of Mega Financial Holding Co. Ltd. and head of the Bankers Association of Taipei, said March 1. Banking and bills finance are among the targeted businesses there.

Wang said his company is open to various options, including stake acquisitions, strategic alliances, upgrading to branches and opening subsidiaries. “We will penetrate the mainland as well as other countries to enhance our competitiveness.”

An analyst with a local securities house said rules in the mainland stipulate that foreign bank branches need to manage earnings for two straight years in a three-year period before they can receive yuan-denominated deposits. Taiwanese banks hope that under ECFA they can obtain an exemption from these restrictions so that they can tap into core businesses there more quickly.

With regards to securities and futures firms, local players prefer full liberalization from Beijing on limits governing their stake ceiling in the mainland so that they can have management control. They also desire permission to undertake brokerage and proprietary trading.

“What we are looking for is a removal of the upper limit governing local firms’ ownership in mainland securities companies,” Taiwan Securities Association Honorary Chairman Chien Hung-wen said March 9.

“The mainland’s permission for full operations by Taiwanese securities companies’ units there is also on the wish list,” said Chien, who also chairs Mega Securities Co. Ltd.

“We have representative offices in Beijing, Shanghai and Shenzhen now, and we will make more aggressive moves when easier market access is forged by an ECFA,” Chien pointed out.

At present, 14 Taiwanese securities companies have set up 27 representative offices in the mainland, Chang Li-chen, deputy director-general with the FSC’s Securities and Futures Bureau said.

Taiwan’s top financial regulator also placed various restrictions on in-bound investment from mainland financial institutions. For instance, any mainland financial body can purchase stakes in only one local counterpart.

Mainland banks need to have representative offices on the island for two years before upgrading to branches. However, such a restriction could be changed if negotiators from both sides in the upcoming ECFA talks agree on easier market access, according to Kuei.

Wu Tang-chieh, deputy minister of the FSC, said the just announced financial regulations aim to meet cross-strait market demand while safeguarding the nation’s economic security and financial stability. “These regulations are designed to be implemented in a progressive manner,” he stated.

“Based on the principle of integrated supervision and effective management, they can lead domestic financial institutions to tap the mainland market in an orderly fashion and permit local presence by mainland financial ones gradually,” the FSC deputy minister added.

Chi Schive, chairman of Taiwan Stock Exchange Corp., echoed the crucial role of an economic pact across the strait: “Signing an ECFA will create more opportunities for Taiwan and increase cross-strait business exchanges.” (HML-HZW)

Write to Adela Lin at adela2009@mail.gio.gov.tw