Mon, Dec 29, 2003 - Page 11 News List

Taking stock of Taiwan's markets

By Joyce Huang  /  STAFF REPORTER

Taiwan Stock Exchange Corp chairman Sean Chen is keen to improve competition among bourses in China, Hong Kong and Taiwan.


Taipei Times: Lots of bankers are urging the government to allow China-based Taiwanese businesses to raise capital in the local bourse by listing on the Taiwan Stock Exchange (TAIEX). How do you think that would impact the local stock market?

Sean Chen (陳沖): First of all, there already exists a mechanism, which allows foreign multinationals, including overseas Taiwanese businesses incorporated outside Taiwan, to list on the TAIEX either as holding companies or to raise capital by means of the issuance of depository receipts. We have had a Malaysia-based Taiwanese company listed here and five issuances of depository receipts by overseas Taiwanese businesses.

The mechanism is well in place for overseas Taiwanese businesses to meet their financial needs except for China-based Taiwanese businesses. Many have argued that allowing China-based Taiwanese businesses to list on the local benchmark would foster more capital outflow [to China]. But I would argue that many TAIEX-listed overseas businesses, be it China-based or not, not only raise local capital to fund their overseas businesses, but also attract foreign capital inflow to invest in the local stock market. As long as your own capital markets are transparent and professional enough, there'll be more foreign capital flowing in.

Look at Hong Kong as an example. The securities market cap in Hong Kong is 285 percent of its GDP, which is way higher than the US and Taiwan's securities market cap. The US market cap is around 120 percent of its GDP while Taiwan's is around 95 percent. Obviously, Hong Kong, which allows foreign companies to list on its stock market, also successfully attracts foreign stock investors to invest in its internationalized market. To learn from Hong Kong's experience, we can say that an opening-up policy would benefit Taiwan with capital inflows in the long run although, in the short term, worrisome capital flights may be facilitated.

TT: You've looked at the policy positively. But still, there must be some disadvantages to the policy that are troubling the government other than fueling China-bound capital flights?

Chen: There surely are. For example, the workload on the Taiwan Stock Exchange Corp would increase. Like any foreign multinationals that are listed on the TAIEX, regulators would have difficulty monitoring management of China-based companies that are incorporated outside Taiwan.

To solve the problem, what we did in the past was to grant foreign companies that have already listed in their home stock markets entry to the TAIEX to make sure they're already qualified listed companies. So, I've proposed that China-based Taiwanese businesses, which plan on listing on the TAIEX, should become listed companies in either their home markets or Hong Kong beforehand. They should also be allowed to dual-list simultaneously in Hong Kong and Taiwan if Hong Kong is such a small market for them.

For example, China Life Insurance Co (中國人壽), dual-listed in Hong Kong and New York, believes Hong Kong is a much more transparent market with strict corporate governance principles. The purpose of dual-listing is, in a way, to dismiss part of the worries that allowing China-based companies to list on the TAIEX may do harm to the local economy.

TT: Will dual-listing burden businesses with extra costs to go on trading their shares in two markets?

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