Expand overseas, but not to China

During an Oct. 13 speech at the 2005 Taiwan Global Investment Forum organized by Euromoney Institutional Investor PLC, Kong Jaw-sheng (龔照勝), chairman of the Financial Supervisory Commission (FSC), said "Taiwan's financial institutions are going to expand to China, and I would ask for regulation in China to open up more to these institutions, so that Taiwan can help China to develop its financial environment."

Ever since he took up his position as chairman, Kong has been a consistent and outspoken critic of the government's cross-strait policy, and his words have on occasion raised a few eyebrows. Not long ago he remarked that "Taiwanese banks are already a bit late if they want to set up branches in China." Taiwanese businesspeople clearly share his opinion.

Many countries such as India, the Philippines, and even South Korea and New Zealand have banks from many countries. Why is it, then, when the commission claims Taiwanese banks are dragging their feet by not having branches in China, that it has never made similar noises regarding our absence in other countries?

For the nation's financial supervisory body to be so indifferent to the financial markets in other countries, but to pander to China, is an attitude and logic that gives one pause for thought.

How many times has the government told us that Taiwan must learn from the financial products and techniques of other countries in order to improve the quality of the financial services we provide? To this end it has encouraged banks to expand operations abroad.

If we are to make the financial industry here more international we should be looking to the financial centers in the US, Europe and Japan, and discovering how we can improve our own financial competence.

We should not be encouraging banks to set up in China, where the financial environment is so much less developed than it is in Taiwan. This will only lead to a dilution of the nation's financial resources.

Recent years have seen great technological strides being made in South Korea, whose annual average GDP per capita surpassed our own last year. One would suggest that the most likely reason for this is that Taiwanese companies have relied too much on cheap resources and labor in China as the answer to their problems.

They have seen this as their only real option to revive their fortunes. Their mantra has been "if we don't go now we'll be losing out on a great opportunity," and they have forced the government to allow them to invest in China. Unfortunately, cheap labor is like opium, and excessive use is definitely bad for the health. Thus our manufacturing industry has lost its drive.

According to estimates published in a report released by the US State Department, Taiwan has made cumulative investments in China of more than US$280 billion.

This is an astronomical sum. South Korea, despite increased investment in China in the wake of its recent economic upswing, still only invests one-tenth of Taiwan's investment. Instead, it invests in itself, consolidating local operations. This is the secret of South Korea's success.

Some people have said: "Where Taiwan businesspeople have gone, the banks must follow." From the bank's point of view, this is correct. But from the perspective of the overall economy, this is not necessarily the case. Putting aside the issue of China's desire to annex Taiwan, the sums involved are simply too large for Taiwan's banks to deal with.

At the end of the last financial year, the balance of deposits in ordinary Taiwanese banks stood at NT$15,550 trillion (US$462 billion), and there simply would not be the liquidity to supply the money needed.

Clearly we haven't the financial basis to bear the burden of Taiwan's investments in China. If the government makes any sudden decisions on this issue, this will be a massive blow to Taiwan's already weakened economy.

Do we want to help upgrade Taiwan's financial environment? Well, Taiwan has already provided US$280 billion in transforming China's traditional businesses into high-technology industries.

In return, China has increased pressure on Taiwan. This is simply a case of making trouble for ourselves. We don't have much capital left, so surely we should keep it for ourselves.

Our financial sector should have the courage and vision to break into the European, US and Southeast Asian market instead. In those markets, Taiwan's capital will not be dissipated, and will also give us the opportunity to improve our knowledge and competency in the financial markets.

Internationalization does not equal Sinification. China is only a part of the international market, and we should not confuse the part with the whole.

Huang Tien-lin is a national policy adviser of Presidential Office. Translated by Paul Cooper and Ian Bartholomew