SinoPac financial Holdings chairman Ho Show-chuan (何壽川) recently said in an an interview that the banking industry in Taiwan cannot afford to remain in the same old rut.
He also said that the country's financial institutions were facing shrinking profit margins as a result of the move of the manufacturing industry away from Taiwan and the limited size of local markets. He added that if the banking industry's expansion into China continued to lag, many banks would be forced to sell off some of their assets.
Those are the candid remarks of a banker who is struggling with the operation of his company at a time when he sees great business opportunities for Taiwanese businesspeople in China.
But can banks really solve their operational problems by establishing branches in China? The result will be the opposite and banks stand to lose far more than they could gain. Some could even face a deadly crisis.
Ho also made it clear that the relocation of the manufacturing industry to China is the reason Taiwan's financial industry is facing problems. The industrial relocation from Taiwan to China means that Taiwanese companies have closed down or reduced the scale of their businesses in Taiwan and transferred a large portion of their investments to China. By some estimates, Taiwanese China-bound investment exceeds US$300 billion. That is why banks in Taiwan are having difficulties finding customers to lend money to.
This can be seen in the growth rate of Taiwan's M2 broader money supply, which fell to 6.5 percent in 2000 from an average of 20.8 percent in the 1980s. In 2002, the number further shrank to 2.6 percent. Since domestic companies do not need much capital, it is naturally difficult to lend money when profit margins are shrinking.
The best solution is broad cooperation to promote domestic investment and reduce the number of companies leaving Taiwan.
Many people have proposed allowing Taiwan's banks to expand their business into China and provide loans to Taiwanese businesspeople there in order to help banks solve the problem of idle capital. Although such an approach seems feasible, it is the industrial relocation from Taiwan to China that is the reason why banks are stuck with great sums of idle capital. If banks in Taiwan provide loans to companies that have relocated to China, they will only expedite their relocation, worsen the domestic investment environment, create more bad debt and bring about their own self-destruction.
At present, more than half of Taiwan's banks have established a total of 212 offices overseas. Thirteen banks generated 20 percent or more of their profits overseas. It is true that there is still room for growth in the overseas expansion of Taiwanese financial institutions and it is in fact necessary that they further internationalize their operations.
However, anyone who says that not going to China implies that we would remain in the old rut has obviously been misled by the pro-Chinese media.
Nowadays China is offering appealing business opportunities. But these opportunities can also lead to problems. Anyone who proposes that industries should move to China should read the article "A discussion of the financial industry's move to China taking into consideration the lesson learned by Japanese banks" (從日銀教訓談金融西進) in the Liberty Times (Opinion, Nov. 15, page A15).
Taiwan's economy is only one-thirtieth that of the US and one-nineteenth that of Japan. Strengthening Taiwan at home is key to solving the economic and other problems facing the banking industry.
Huang Tien-lin is a former national policy adviser to the president.
Translated by Daniel Cheng
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