Last week, central banks on both sides of the Taiwan Strait moved against excessive liquidity, particularly hot money, in a pre-emptive campaign targeting asset bubbles.
On Monday, Taiwan’s central bank issued a statement highlighting the necessity of capital controls. The statement, which the central bank dubbed “reference materials,” listed dozens of commentaries by international agencies and leading economists relating to Asia’s potential asset bubbles and controls on international capital flows.
Since early October, the central bank has on several occasions expressed its dislike of short-term foreign capital inflows in financial markets. It even joined the Financial Supervisory Commission in warning foreign investors to leave the country within the week if they had not put their money into Taiwanese shares or bonds as they promised to do.
This time, however, in the context of a cross-strait financial memorandum of understanding that took effect yesterday, the central bank seems to be worried about the entry of Chinese capital in the form of qualified domestic institutional investor (QDII) funds. The concerns arise from the possibility that speculators will target Taiwan via the Chinese funds.
The central bank’s concern eventually led to a compromise at the Financial Supervisory Commission. On Friday, the commission announced that it would allow Chinese QDII funds to invest up to US$500 million in Taiwanese stocks — half of the planned ceiling of US$1 billion that the commission initially proposed to the Cabinet.
In China, the threat of hot money, coupled with excessive liquidity in the banking system, also forced that country’s central bank to unexpectedly announce on Tuesday a 0.5 percentage point increase in the reserve requirement ratio for commercial banks, effective tomorrow.
By forcing commercial banks to deposit more money in the central bank, Beijing hopes the move will lower the amount that commercial banks will lend out amid an overheating economy. It was also aimed to help curb stock and property speculation.
Clearly, China is becoming more wary of excessive liquidity and hot money inflows. The government has recently acted to impose taxes on certain property transactions, encourage tighter scrutiny of loans and more closely monitor foreign fund inflows to prevent speculative investment.
The problem is how effective these measures are likely to be — and whether more aggressive measures should be waiting in the wings. The irony is that if the central banks have to raise interest rates ahead of similar moves by the US Federal Reserve, the European Central Bank and other major central banks, then Taiwan and China may risk attracting more speculative capital, thus aggravating the asset bubble threat.
The most important challenge for the two governments is how to respond if investors take a different attitude from a year ago, when the whole world was hit by a disorientating financial crisis, and swarm around currency, stock and property investments.
It is the nature of investors to seek opportunities for profit, short term or long term.
Governments, however, have the responsibility to guide excessive liquidity into spending and production in the real economy instead of allowing such funds to flow exclusively to markets dealing in equities, real estate and commodities. The alternative is rising asset prices, one of the most enduring effects of loose credit policy in the post-crisis period.
Recently, China launched another diplomatic offensive against Taiwan, improperly linking its “one China principle” with UN General Assembly Resolution 2758 to constrain Taiwan’s diplomatic space. After Taiwan’s presidential election on Jan. 13, China persuaded Nauru to sever diplomatic ties with Taiwan. Nauru cited Resolution 2758 in its declaration of the diplomatic break. Subsequently, during the WHO Executive Board meeting that month, Beijing rallied countries including Venezuela, Zimbabwe, Belarus, Egypt, Nicaragua, Sri Lanka, Laos, Russia, Syria and Pakistan to reiterate the “one China principle” in their statements, and assert that “Resolution 2758 has settled the status of Taiwan” to hinder Taiwan’s
Singaporean Prime Minister Lee Hsien Loong’s (李顯龍) decision to step down after 19 years and hand power to his deputy, Lawrence Wong (黃循財), on May 15 was expected — though, perhaps, not so soon. Most political analysts had been eyeing an end-of-year handover, to ensure more time for Wong to study and shadow the role, ahead of general elections that must be called by November next year. Wong — who is currently both deputy prime minister and minister of finance — would need a combination of fresh ideas, wisdom and experience as he writes the nation’s next chapter. The world that
The past few months have seen tremendous strides in India’s journey to develop a vibrant semiconductor and electronics ecosystem. The nation’s established prowess in information technology (IT) has earned it much-needed revenue and prestige across the globe. Now, through the convergence of engineering talent, supportive government policies, an expanding market and technologically adaptive entrepreneurship, India is striving to become part of global electronics and semiconductor supply chains. Indian Prime Minister Narendra Modi’s Vision of “Make in India” and “Design in India” has been the guiding force behind the government’s incentive schemes that span skilling, design, fabrication, assembly, testing and packaging, and
Can US dialogue and cooperation with the communist dictatorship in Beijing help avert a Taiwan Strait crisis? Or is US President Joe Biden playing into Chinese President Xi Jinping’s (習近平) hands? With America preoccupied with the wars in Europe and the Middle East, Biden is seeking better relations with Xi’s regime. The goal is to responsibly manage US-China competition and prevent unintended conflict, thereby hoping to create greater space for the two countries to work together in areas where their interests align. The existing wars have already stretched US military resources thin, and the last thing Biden wants is yet another war.