The Financial Supervisory Commission (FSC) yesterday said it welcomes China-based affiliates of Taiwanese-listed companies issuing yuan-denominated bonds in Taiwan to raise fresh capital.
China-based subsidiaries of Taiwanese financial institutions are also qualified to issue Formosa bonds to meet their future capital needs, the commission said in a statement.
The commission’s response came after Hon Hai Precision Industry Co (鴻海) chairman Terry Gou (郭台銘) on Thursday criticized the government’s plan for Chinese companies to raise funds in Taiwan through the issuance of Formosa bonds, saying it could have an adverse impact on Taiwanese firms.
Gou was worried that funds raised in Taiwan by Chinese companies could be channeled back to China to support their business expansion, such as flat-panel display production, which could harm the future development of Taiwan’s own industries, media reports said on Thursday.
His remarks reflected growing concern over the potentially negative impact of Formosa bonds since Dec. 10, when four of China’s largest banks — China Construction Bank (中國建設銀行), the Bank of China (中國銀行), Bank of Communications (交通銀行) and Agriculture Bank of China (中國農民銀行) — issued and listed 6.7 billion yuan (US$10.98 billion) in such bonds on the over-the-counter (OTC) market for the first time.
Under the commission’s regulations, large state-owned Chinese banks, commercial lenders and their overseas branches are eligible to issue Formosa bonds in Taiwan after gaining approval from the GRETAI Securities Market. Policymakers are hoping the relaxation will help Taiwan develop into a regional offshore yuan hub as well as boost the nation’s bond market and underwriting business.
“Considering the overcapacity problem in China’s flat-panel and LED industries, funds raised from Formosa bonds could be used to further expand their capacity, which could escalate the problem and pose a threat to Taiwanese manufacturers,” the Chinese-language Economic Daily News yesterday quoted Gou as saying.
Hon Hai is the world’s biggest electronics manufacturing services provider and a major assembler of Apple Inc’s iPhones and iPads. The company is also a key shareholder of Innolux Corp (群創光電), the nation’s top LCD panel maker, which competes with China’s BOE Technology Group Co (京東方) and China Star Optoelectronics Technology Co (華星光電) in this line of business.
In response, the commission said it has set a ceiling of 10 billion yuan for Formosa bond sales by Chinese entities in Taiwan and only allows select companies to issue such bonds.
“Therefore, it should not lead to concerns over unfair industrial competition between China and Taiwan,” the commission said in the statement.
The development of the Formosa bond market can also help digest yuan deposits in Taiwan and meet the need of institutional investors in Taiwan, it said.
As of the end of last month, a total of 155.12 billion yuan had been deposited in Taiwan, according to data compiled by the central bank.
Separately, the commission on Thursday approved plans to allow domestic life insurance companies to sell yuan-denominated protection-type policies. Currently, all yuan-based insurance policies are linked to other investment tools.
Insurers must meet the required capital adequacy ratio of 200 percent to qualify for the new business and the policies must have a duration of at least four years, the commission said in a separate statement.