Financial Supervisory Commission (FSC) Chairman Chen Yuh-chang (陳裕璋) yesterday pledged full support to monitor inflows of foreign funds, but voiced reservations about levying a “hot money” tax, saying such a measure could rattle domestic equity markets.
Chen made the comment after briefing the legislature’s Finance Committee on his agency’s operations and policy goals.
“It is better to take a cautious approach in dealing with the matter [a hot money tax], given the complexity involved and its potential far-reaching impact,” Chen said.
Central bank Governor Perng Fai-nan (彭淮南) recently quoted Nobel-winning economist Joseph Stiglitz as saying the US and European quantitative easing slowed economic recovery in the West and caused chaos to global foreign exchange with currencies in emerging economies bound to rise.
Central banks in different countries have adopted capital control measures, including a hot money tax, to help stabilize their currency, financial markets and asset prices, Perng cited Stiglitz as saying.
Chen said the central bank was closely monitoring hot money movements in and out of the country and the commission was doing all it could to help.
However, a hot money tax could throw the local bourse into disarray and authorities must conduct a thorough review before considering such a policy, Chen said.
Foreign funds account for roughly one-third of local stock transactions.
As of yesterday, the NT dollar had gained 4.09 percent against the US currency so far this year as funds keep flowing to Asian markets to take advantage of the region’s fast-growing economy and higher yields.
The TAIEX picked up more than 70 percent last month from the end of 2008, outperforming South Korea’s bourse at 58.30 percent and the US and Japanese stock markets at 41.64 percent and 2.87 percent respectively, Chen said.
Revenues for Taiwanese listed companies jumped 39.75 percent in the first half from the year-earlier level, while pre-tax profits doubled — a clear sign of improving fundamentals, Chen said.
He reiterated his determination to step up oversight to prevent a massive exodus of funds across the Taiwan Strait after Taipei and Beijing agreed in June to open bilateral banking markets.
The commission has approved 10 lenders to set up branches and representative offices in China.
“The commission will require China-based units to stop those operations if their finances threaten their Taiwanese parent,” Chen said.
China-based branches must also raise the bulk of their funding in China, rather than rely on their Taiwanese parent companies, Chen said.
Funds wired by local banks to their branches in China may not exceed 15 percent of their net worth, Chen said, adding that the ceiling was 10 percent for financial holding companies.
Meanwhile, Chen said two Chinese banks have completed commercial registration to open representative offices in Taiwan after obtaining the commission’s approval last month. The Bank of China (中國銀行) and Bank of Communications’ (交通銀行) representative office can now begin operations, he said.