Fri, Nov 10, 2006 page12

• Legislature pushes bank liberalization

  CROSS-STRAIT BUSINESS Taiwan Solidarity Union Legislator David Huang said that the initiative would only accelerate the outflow of capital and technology to China

  • By Shih Hsiu-chuan and Amber Chung / STAFF REPORTERS
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  A regulation allowing Taiwanese banks to invest in China passed preliminary review in the legislature yesterday amid a chaotic session in which pan-green lawmakers refused to recognize the result.

  The legislators said the committee convener had handled proceedings unfairly.

  The regulatory relaxation appears to open a door for Taiwanese banks to make inroads into China's financial market through the establishment of subsidiaries, since opening branches is not possible under Taiwanese law because there is no bilateral supervisory agreement.

  Eighty four lawmakers endorsed the proposed amendment to Article 36 of the Statute Governing Relations Between Peoples of the Taiwan Area and the Mainland Area (兩岸人民關係條例).

  After passage in yesterday's Home and Nations Committee, the amended article promoted by Chinese Nationalist Party (KMT) Legislator Lee Jih-chu (李紀珠) would be referred to cross-party negotiation before being introduced to the legislature for a second reading.

  Lee expected the amendment to finish its third reading within the current legislative session ending in December. Yet the timetable could be delayed for four more months if the pan-green camp demands partisan negotiations before further review, she said.

  The amended article allows local banks to set up branches and subsidiaries in China directly or indirectly via a third country and to invest in Chinese rivals.

  In addition, the finance sector would be removed from the "prohibited items" for investment in China, and responsibility for the matter would be shifted from the Ministry of Finance to the Finance Supervisory Commission (FSC).

  Banks would be required to apply for permission from the FSC before establishing a branch in China, but the FSC would have few discretionary powers. Applicants fulfilling all the relevant criteria would be automatically granted permission, Lee said.

  Lee added that it was imperative to pass the amendment if the government really takes the goal of enhancing the competitiveness of Taiwan's banks seriously.

  "According to China's WTO commitments, foreign banks can establish wholly foreign-owned branches in any Chinese city and provide local and foreign currency to Chinese individuals. It's time to lift [Taiwan's] restrictions," Lee said.

  Taiwanese banks are only allowed to establish representative offices in China, with government officials saying that the ban on opening branches in China is due to a lack of a "memorandum of understanding" (MOU) concerning financial supervision.

  Although some pan-green politicians including Democratic Progressive Party Legislator Tsai Chi-chang (蔡其昌) had signed their names on Lee's proposed amendment, some pan-greens lawmakers yesterday voiced strong opposition to the revision.

  Taiwan Solidarity Union Legislator David Huang (黃適卓) said that lifting the restriction would only accelerate the outflow of capital and technology from Taiwan to China, which is already out of control.

  "Furthermore, it would be a great risk for financial businesses to invest in China without the protection of a MOU and the public would have to shoulder the consequences," Huang said.

  Meanwhile, Mainland Affairs Council (MAC) Vice Chairman Johnnason Liu (劉德勳) said yesterday that the council considered that the amendment was inappropriate and would sabotage the current administrative arrangements for Taiwanese banking operations in China.

  He said the amendment would not resolve the MOU problem, on the contrary, loosening restrictions would only cause greater disorder in bank management, Liu added.

  The FSC said, according to current international practice, signing a formal bilateral MOU is not necessarily a matter of high politics and sovereignty.

  "It can be done as long as there are communication conduits and cooperation mechanisms between the home and host countries," the commission's spokesperson Susan Chang (張秀蓮) said, citing current practice between Taiwan and the US and Japan.

  Local financial institutions said they welcomed the plan.

  "We do hope for opportunities to develop in China's financial market where Taiwanese banks enjoy advantages of language and culture [in competing with foreign rivals]," said Lee Chang-ken, chief strategy officer of Cathay Financial Holding Co (國泰金控), the nation's largest financial group by assets.

  Additional reporting by Jewel Huang
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