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Talk of the day -- Rules ready for financial exchanges with China
2010/03/17 20:54:59 |
The Financial Supervisory Commission (FSC) unveiled Tuesday new regulations governing cross-Taiwan Strait market access for the banking, securities brokerage and insurance sectors, laying the groundwork for financial institutions on either side of the strait to enter each other's market.
Under new regulations that took effect immediately, Taiwanese financial institutions including banks, insurance companies and securities firms are entitled to two of three options: establishing representative offices, opening branches or subsidiaries, and holding stakes in a Chinese bank or firm.
In contrast, Chinese banks will only be allowed to set up representative offices and branches in Taiwan or acquire stakes in Taiwanese banks, but will be barred from setting up subsidiaries.
The FSC also imposed a "sunrise" clause for Chinese banks to buy stakes in local banks, with the timing for such opening hinging on negotiations for the proposed cross-strait economic cooperation framework agreement (ECFA).
While financial service providers hailed the new market opening move, some academics cautioned that Taiwan's banking system and financial market may become more volatile and that Chinese banks could dominate Taiwan's financial market through mergers and acquisitions.
The following are excerpts from local media coverage of the issue:
Economic Daily News:
In an effort to prevent the entry of Chinese banks from having a drastic impact on Taiwan's financial market, the FSC has set high thresholds for Chinese banks to enter Taiwan.
Only those that rank among the world's top 1,000 banks, have operated in member countries of the Organization for Economic Co-operation and Development (OECD) for more than two years and have not committed major violations of rules will be permitted.
According to FSC estimates, only five Chinese banks will qualify to enter the local financial market.
Initially, Chinese banks can only set up representative or liaison offices in Taiwan. Two years later, they may apply to upgrade the liaison offices to branches.
But the requirements for setting up branches are more stringent, including a rank among the world's top 200, no major legal infractions in the past five years and having operated in OECD member countries for over five years.
The restrictions may be eased during ECFA negotiations, FSC officials said.
The qualifications for Chinese banks to buy stakes in Taiwanese banks will be same as those for opening branches in Taiwan, but the timing will be announced later. (March 17, 2010). China Times:
Under the new regulations, 14 Taiwanese banks or financial holding companies are eligible to open liaison offices in China and 10 of them have already set up footholds in China.
Meanwhile, 13 Taiwanese banks are qualified to set up branches in China and five are eligible to operate subsidiaries in China.
All Taiwanese banks or financial holding companies are only entitled to two of the above-mentioned three options and can only buy stakes in one Chinese bank.
If all goes well, Taiwanese financial institutions can apply to enter the Chinese market after the FSC delivers a report on the new regulations next week.
Some qualified private financial groups, such as Cathay and Chinatrust, said they would apply as soon as the government begins accepting applciations.
But their business strategies in China will be very different. Cathay said it would initially focus on applying to set up branches in China, while Chinatrust said it would seek to set up subsidiaries or buy stakes in Chinese banks in order to speed up its penetration of the vast Chinese market. (March 17, 2010). Liberty Times:
In addition to setting high thresholds for Chinese banks to enter the Taiwan market, the regulations also stipulate that any single Chinese bank can obtain no more than a 5 percent stake in a local financial institution and that the total stake held by all Chinese banks and Qualified Domestic Institutional Investors (QDIIs) should not exceed 10 percent.
Although the FSC has imposed strict restrictions to keep local financial institutions from falling under Chinese control, Wang Tu-fa, an economics professor at National Taipei University, said it would not be difficult for Chinese financial groups to join forces to take over private local financial institutions, which tend to have a number of relatively small shareholders.
Wang said that if past experience was any guide, cross-strait financial exchanges will only become more and more liberal. For example, he said Taiwan originally restricted local companies to invest no more than 40 percent of their total paid-in capital in China, but the cap has since been raised to 60 percent.
Chiu Chun-jung, an economics professor at National Central University, said the opening of cross-strait financial exhcanges will not only affect the stability of the local financial market but also lead to an exodus of financial talent. (March 17, 2010). (By Sofia Wu) enditem/bc
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