Let Chinese banks in, group says

The nation's financial regulator may allow Chinese banks to set up

representative offices in Taiwan, a good-willing gesture that is aimed to

pave the way for the signing of a much-needed corss-strait financial

supervisory pact, according to a consensus reached at a preparatory meeting

for the Conference on Sustaining Taiwan's Economic Development yesterday.

The conference will be held at the end of this month.

Under the principle of reciprocity, the government would be required to hammer out a set of approval mechanisms that would allow Chinese banks, securities offices and insurance firms to apply to set up representative offices in Taiwan, according to an agreement reached at yesterday's financial group preparatory meeting comprised of legislators, academics and business representatives.

Beijing has already permitted Taiwanese lenders to set up representative offices in China.

"We hope the proposed opening-up will pave the way for the signing of a memorandum of understanding [MOU], officially or unofficially, by amplifying the needs of our Chinese counterparts," People First Party Legislator Christina Liu (劉憶如) said on the sidelines of the meeting yesterday.

This could lead to an upgrading of Taiwanese banks' operations in China, if the reciprocal treatment and the MOU materialize, said Liu, who is also one of the conveners of the financial group meeting.

The seven Taiwanese banks that gained approval to establish representative offices in China have been restricted from upgrading into branches in the fast-growing economy, due to a lack of reciprocal measures or a bilateral financial supervisory agreement.

Four Chinese banks, including China Merchants Bank (招商銀行) and Shanghai Pudong Development Bank (上海浦東發展銀行), have expressed interest in tapping into the local financial market as soon as the government gives the long-expected green light.

Meanwhile, the group suggested allowing local banks to set up branches or subsidiaries and invest in their rivals in China, on condition that a cross-strait financial supervisory mechanism and risk control measures be formed "without any compromise of sovereignty and national security."

The condition could also be applied to a proposal to allow Taiwanese securities firms and their overseas subsidiaries to set up outlets or invest in counterparts across the Strait.

The nation's banking sector has been crying out for cross-strait investment rules to be liberalized so lenders can serve clients that have migrated to China -- Taiwan's largest investment destination.

"Foreign banks usually outdo local banks when competing for Taiwanese clients because they are able to provide services in China without any limitations," said industry representative Kenneth Lo (駱錦明), chairman of the Industrial Bank of Taiwan (台灣工銀).

Taiwan's banking industry risks becoming marginalized if this disadvantage is not removed, Lo said.

But Democratic Progressive Party Legislator Wang To-far (王塗發) worried that the hazards faced in the Chinese market could spread back to home market without effective risk control -- for example if Taiwanese banks' outlets in China faced bankruptcy.

The risks of concentrating Taiwanese investment in a hostile country remained high, Wang said.

The group further suggested that mutual funds in Taiwan be allowed to invest in stock markets in China as well as Chinese firms listed on the Hong Kong bourse. Mutual funds would be able to invest up to 0.4 percent of their total funds in Chinese stock markets, or around NT$800 million (US$24.73 million), and 10 percent of their funds in Hong Kong-listed Chinese firms, according to the agreement.