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Investment limits protect Taiwan

`Without the caps on Taiwanese investment in China, Wang [You-theng] could have built a bigger and meaner "financial monster" in China.'

The public revelation on Jan. 4 that the Rebar Asia Pacific Group (力霸集團) had applied for restructuring on Dec. 29 led to a run on its subsidiary The Chinese Bank (中華銀行) the following day. Within three days, customers had withdrawn more than NT$43 billion (US$1.3 billion), plunging the bank NT$11.8 billion into debt almost overnight. Group chairman Wang You-theng (王又曾) and his wife had fled to China between Dec. 30 and Jan. 1, leaving the Taiwan Stock Exchange, the Securities and Futures Commission and the Financial Supervisory Commission (FSC), as well as investors, to cope with the massive losses and a snowballing scandal.

Still, the scandal has high-lighted a vital issue. Because of the persistent efforts of pro-localization forces, Taiwan has maintained its restrictions preventing banks from establishing subsidiaries across the Strait. Without these limits, the Rebar scandal would have inflicted even heavier losses on Taiwan.

If the Taiwanese government had followed the global trend and freely permitted Taiwanese banks to set up branches or buy up banks in smaller Chinese cities, the Rebar Group could have moved all of its assets to China. Its real estate holdings in Shanghai might have included a whole "Rebar Chinese Bank Building" instead of just four little apartments. And it could have established a Shanghai headquarters to manage and direct all its investments in China, using money embezzled from Taiwan.

Losses wouldn't then be limited to tens of billion dollars, as financial officials estimate, but some other astronomical figure that the Financial Restructuring Fund wouldn't be able to handle.

Without the caps on Tai-wanese investment in China, Wang could have built a bigger and meaner "financial monster" in China. The FSC already has difficulties handling Taipei's financial woes. A Taiwanese "financial monster" with Beijing's backing would pay no heed to the FSC.

One might ask how the government could have failed to mon-itor banks' operations as stipulated in the Banking Law (銀行法) and with an appointed financial regulatory body. Evidence shows that the government did not have that kind of control over finances. The Rebar scandal brewed here in Taiwan under the FSC's nose, as if its oversight powers were impotent and it were completely ignorant of all the financial information at its disposal.

But just imagine if the scandal had its beginnings in China. A number of officials and academics hold the view that if the oversight mechanism is implemented well, the government shouldn't fear letting banks go to China. Neither would there be a need to sign a memorandum of understanding.

Some even think that re-stricting investment in China is tantamount to "sticking one's head in the sand and sealing off the country. They believe that Taiwan should have confidence in itself and bravely join the competition in China. Perhaps these people need to take the Rebar scandal as a warning, and stop equating liberalization with self-confidence.

The Rebar case has highlighted the importance of signing a memorandum of understanding with Beijing before allowing Taiwan-ese investment in China's banking industry. Without a memorandum, Taiwan's financial investigation authorities will not be able to make official trips to check up on Taiwanese banks in China. Without on-site investigations, there could be no real monitoring. Taiwanese banks that invest in China would then be able to drift around at their pleasure like a kite cut loose. But this would be a major disaster for Taiwanese, placing their deposits and the local stock market at risk. National security could be put in jeopardy as well.

China's plan to annex Taiwan by using business as bait is no secret. Nevertheless, some government figures persist in thinking of "practical" ways to use private negotiations instead of a memorandum of understanding to allow banks to invest in China. How does this policy differ from the pan-blue camp's opposition to approving the arms procurement package? Both of them end in "eventual unification."

Taiwan should think twice before going down this road.

Huang Tien-lin is a former adviser to the president.

Translated by Marc Langer
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