Banks miss China boat

As Taiwan grapples with its ties with China, local banks, it seems, may turn out to be the losers as the government tries to balance the pull of cross-strait economic integration with the push of political autonomy.

Taiwanese banks are already suffering from a major downturn, the causes of which are no longer a secret -- market saturation, haphazard deregulation in the early 1990s and the resulting credit binge coupled with lax supervision.

One area contributing to this problem, which has gone relatively unnoticed, is Taiwan's ties with China. And bankers are finally complaining that the government's ban on banks setting up operations in China has turned out to be a major impediment.

Lee Yung-san (李庸三), chairman of the International Commercial Bank of China (國際商銀), one of Taiwan's largest banks, suggested this week that the government allow local banks to establish operations in China "as soon as possible."

Lee told reporters in Honolulu, where he was attending the Asian Development Bank's annual meeting, that the government's current practice of sending banks on "rescue missions" to resuscitate the troubled traditional industries is "inappropriate."

Some observers, including Huang Tien-ling (黃天麟) -- former chairman of First Commercial Bank (一銀) and now an outspoken presidential advisor -- have even blamed the outflow of Taiwanese investment to China as a cause behind Taiwan's high non-performing-loan rate.

As leading Taiwanese companies move to China, their banks -- restricted by regulations -- are unable to track down their investments or the destination of their loans.

Some argue that allowing banks to go to China may help them get a better picture of where those finances are funneled and help them better monitor the performance of their clients.

Political factors aside, the government's decision to restrict banks from investing in China is based on the fear of capital outflow to China, since foreign financial institutions are not allowed to accept deposits in China.

But reports said that the Chinese government is already helping finance the investment of better performing Taiwanese investors in China, triggering fears that domestic banks may lose their best clients.

Foreign bankers believe that most of their clients with international operations, with manufacturing bases in China, highlight the need for a global network. Peter Bauman, the country head of Citibank in Taiwan, believes that his bank's corporate banking operation is basically about greater China.

"Because a lot of companies have moved to China and that is what gives them real flexibility in terms of other Southeast Asian countries, and that is what gives them the real flexibility in terms of their cost structure," Bauman told the Taipei Times in an earlier interview.

Chinatrust Chairman Jeffrey Koo (辜簾淞) has also previously highlighted the need for the banks to service their clients in China.

Taiwan's economic integration with the mainland has grabbed the headlines once again with the visit of former Premier Vincent Siew (蕭萬長) to China, where he was promoting a cross-strait "common market."

On Saturday, Kenichi Ohmae, an internationally acclaimed Japanese management guru, told an audience of nearly 3,000 in Taipei that the government "must hurry" to implement its three links with China.