Wed, Jul 09, 2003 page10

• TSU wants market protections

  STABILITY Now that the government has promised to remove limits on foreign investment in the nation's stock markets, legislators advocate safety-measures

  • By Joyce Huang / STAFF REPORTER
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  Despite the government's proposed plan for relaxing restrictions on foreign investment in the nation's stock market, it should implement failsafes to monitor irregular capital inflows and outflows in the future, analysts said yesterday.

  The government should set up a capital-monitoring mechanism to prevent politically-motivated Chinese investments and international speculators from sneaking in to manipulate capital markets, TSU legislator Eric Wu (吳東昇) said.

  In view of increased foreign inflow into Taiwan's securities market, the Chinese leadership and greedy speculative capitalists may be detrimental to the nation's markets, Wu said.

  President Chen Shui-bian (陳水扁) on Monday announced plans to scrap a US$3 billion cap on qualified foreign institutional investors' (QFIIs) investment in the nation's equities market.

  "The government should request [QFIIs] to declare the final beneficiary of each sizable transaction in order to detect questionable cash-flow, in or out [of the nation], which endanger national security or market stability," Wu said.

  The businessman-turned-lawmaker said that precautions should be taken immediately to deter ill-intentioned capital inflows, which could end up damaging Taiwan's markets.

  For example, he continued, Chinese capitalists may try to acquire a majority of shares in privileged telecommunications and broadcasting industries, or be interested in controling a listed company to adversely affect the nation's financial stability for political gain.

  Even in a free-market economy, it's still reasonable to implement restrictions on "unfriendly investors," Wu said.

  A local investment manager -- also surnamed Wu -- agreed, saying that Taiwan's economy is easily affected by outside forces.

  "A quick infusion of money may be good news [for Taiwan], but if it is withdrawn just as quickly, the market could suffer dearly," said the manager on condition of anonymity, citing the 1997 financial crisis that had tormented Thailand.

  Investors won't inject more foreign capital into Taiwan simply because of yesterday's announcement of the new policy. They will only do so because they are optimistic about Taiwan's fundamental conditions, the manager said.

  In response to these concerns, both the central bank and the Securities and Futures Commission are reportedly working on supporting measures regarding the policy of opening-up foreign investment, which is slated for implementation by the end of the year.

  The supporting measures include an ID-card system and a background check for foreign investors, who have to prove they have no connections with Chinese investors or international hedge funds, which may impact foreign exchange market operations, according to Chinese-language media reports yesterday.

  SFC vice chairman Wu Tang-chieh (吳當傑) yesterday emphasized that current laws clearly stipulate that Chinese investors and international hedge funds are not allowed to invest in the nation's stock markets.
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