Lawmakers propose ease on China bank investment

With Beijing opening its currency services to all foreign banks by the end of the year, lawmakers proposed yesterday that regulations be amended to allow Taiwanese banks to invest in their Chinese counterparts in order to seize a slice of the huge market.

"Compared to multinational banks, Taiwan's banks are already late to the Chinese market, where we have advantages," Chinese Nationalist Party (KMT) Legislator Lee Jih-chu (李紀珠), who drafted the amendment to the Statute Governing the Relations Between the People of the Taiwan Area and the Mainland Area (兩岸人民關係條例), said.

Currently, local lenders are not allowed to open banks or invest in banks in China. While banks such as Chang Hwa Commercial Bank (彰化銀行), Cathay United Bank (國泰世華銀行), Hua Nan Commercial Bank (華南銀行) and Chinatrust Commercial Bank (中國信託銀行) have set up representative offices across the Taiwan Strait, they cannot start their services in the absence of a memorandum of understanding (MOU) signed by governments from the two sides on banking supervision.

Even if Taiwan and China sign an MOU, Chinese regulations require that all foreign banks must have operated in China for three years, and been profitable for two of those, before they would be allowed to launch Chinese yuan currency services, she added.

To make inroads into the lucrative Chinese market through the Closer Economic Partnership Arrangement (CEPA) between China and Hong Kong, Fubon Financial Holding Co (富邦金控), the nation's second-largest banking group, acquired a 75-percent stake in Hong Kong's International Bank of Asia (港基銀行) at the end of 2004.

That method, however, may not be viable for most local banks since the value of Hong Kong banks are fairly high, Lee said.

The draft amendment aimed to lift the ban on bank investments in China, and would have the Financial Supervisory Commission replace the Mainland Council Affairs as the regulator of this business, Lee said.

Even so, Lin Chung-cheng (林忠正), Financial Supervisory Commission spokesman, yesterday stressed the importance of supervision, saying that banks' investments in China must be well regulated through transnational cooperation.

Although signing an MOU would be difficult now due to political tensions between Taipei and Beijing, Lin said that financial institutions could also apply to set up branches across the strait by following the so-called "Basel standards," which only require that documents be exchanged between the two authorities.

Nonetheless, politics pose a stiff challenge, as China's Taiwan Affairs Office remains tough on upholding the so-called "one China" principle, Lin said.

"We really hope that we [Taipei and Beijing] can sit down to talk about equality and reciprocity, rather than having China tell us what to do," he said.

Local banks welcomed the idea of liberalization and hope that the amendment will pass as soon as possible.

"Lifting the ban would help us to grab a piece of the huge market, starting with the large number of China-bound Taiwanese business-people," Joseph Jao (饒世湛), executive vice president of Cathay United Bank, said in a phone interview.

Taiwanese businesspeople have invested over US$100 billion in China, and one major problem they have in developing business there is funding, Jao said.

"With language and cultural similarities, we should have advantages over foreign lenders in the market, but if the liberalization is not realized by the end of the year, the game is over for us," Jao said.