China’s Shanghai free-trade zone (FTZ) may have a mixed impact on Taiwan’s financial and industrial sectors, given similarities in their population size and geographic proximity, DBS Bank said in a report yesterday.
“Competition has already taken place in some industries,” the Singaporean bank said.
In the shipping sector, Shanghai has been the world’s largest container port since 2010, whereas Greater Kaohsiung’s ranking fell to 13th last year from 6th in 2005, the report said.
Moreover, China ranks 26th in the global logistics performance index, not far behind Taiwan’s 19th, in terms of customs clearance efficiency, quality of infrastructure and services.
The Shanghai FTZ will open up a wide range of service sectors encompassing finance, shipping, commercial trade, professional, cultural and social services, the report said, adding that as an experimental area of China’s financial reforms, the FTZ would eventually allow full convertibility of the yuan.
Companies will be encouraged to use Shanghai as the platform for yuan settlements and financing. This implies competition for existing offshore yuan markets, especially Taipei, which is not an established global financial center like Hong Kong or Singapore, DBS said.
Competition will also come from the non-financial services sectors as evidenced by plans to allow foreign investors to set up wholly owned medical institutions, the report said.
If Shanghai’s healthcare sector improves strongly, Chinese residents pursuing high quality medical treatment will have more options at home.
“This bodes ill for Taiwan, which has newly opened medical tourism to Chinese visitors and remains at the early stage of developing international medical services,” the report said.
On the flip side, the Shanghai FTZ will bring investment opportunities for Taiwanese investors, due to further opening of business scope, the report added.
To achieve full yuan convertibility and build Shanghai into an international financial center, China may speed up the liberalization of its capital account within the FTZ, thereby creating new business for foreign banks and asset management companies in the area of wealth management, it said.
“Taiwanese investors should be in a good position to capture investment opportunities in the FTZ, thanks to established networks and favorable policy support,” the report said.