On Sept. 17, the Chinese-language United Daily News, Economic Daily News, Commercial Times and Want Daily all ran what was essentially the same front-page story with headlines blaring that China’s Banking Regulatory Commission had given approval to four Taiwanese banks to open branches in China. This was the big story of the day. The contrast between this coverage and how the first Taiwanese bank given approval to open in Europe 26 years ago and the first provincial bank branch approved to open overseas 37 years ago were reported, could not be more stark.
Little attention was paid to these latter two events, but the approval for Taiwanese banks in China is being treated as if it were cause for some kind of national celebration. Of course, the media is free to report whatever it wants. Though, the fact these banks are now allowed to establish branches in China is bad news for Taiwanese, and especially those who own small or medium businesses.
Why do I say this? First, getting a foothold in China, as Taiwanese banks see it, is something quite different from normal international expansion.
As someone high up in one Taiwanese bank put it, opening up branches in China would help them build their “second banking highway,” stretching all the way from Beijing in the north to Guangdong in the south — their first “highway” is in Taiwan, running from Taipei to Kaohsiung.
In other words, they see this as an opportunity to replicate the financial empire they have created in Taiwan, over in China, but on a bigger scale. This mindset of “blazing a trail into the Old Country” is not uncommon in Taiwanese banks.
Second, these financial groups are pretty much a law unto themselves. In the late 1990s, the government was forced to change its policy on several occasions to accommodate big business interests. Then, not one month ago, the head of one of these groups flew into a rage over the Financial Supervisory Commission’s (FSC) limits on shares Taiwanese companies are allowed to hold in Chinese banks.
The reverberations of this hissy fit were heard all the way up in the highest echelons of the government. The authorities, favoring big business, directed members of the FSC to approach, in person and cap in hand, the boss of the financial group to see what needed to be done. In the end, they opened the door for venture capital and leasing subsidiaries of the group to invest in financial leasing companies in China.
This loosening up of policy was done, they said, in the interests of “reassuring the public.”
There is no reason to believe we won’t see more of this kind of blatant, bare-faced manipulation of the government after these same financial groups start operating in China. It is difficult to be optimistic about how far these institutions will condescend to countenance any “effective oversight” of their activities.
Third, there is great demand in China for bank capital at the moment, and the difference in interest rates for deposits and loans remains, at three percent, quite high (it has already fallen to one percent in Taiwan). This is all very tempting for Taiwanese banks. Therefore, after these banks start operating in China we are going to experience an immediate shift of credit services over the Taiwan Strait as banks here try to cash in on the opportunities in China, trying to make their capital work harder for them.
Finally, the latest Basel Accord — a set of regulatory recommendations for the banking industry — entails much more stringent regulation of bank capital and any extension of credit by Taiwanese banks within China would result in a corresponding curtailing of their ability to lend at home.
This means that they will have to reduce the amount of, and increase the conditions placed on, credit offered in Taiwan. The people who are going to be most affected by this are small and medium-sized businesses, and this cannot be good for the sustainability of Taiwan’s economic development over the long term.
Of course, it’s not all bad. China is going to benefit most from this, followed by Taiwanese businesses based in China and then the Taiwanese banks allowed to operate there, who will be able to take advantage of the interest rate spreads. Unfortunately, it is the man and woman on the street in Taiwan and the small and medium-sized businesses that will suffer the most.
Although this will be mitigated to a certain extent by the fact that Chinese banks will be able to operate in Taiwan, these banks will be, for the most part, having to toe the line that Beijing sets: Loans they offer will not be entirely deregulated. Taiwan stands to lose before it gains.
It comes as no surprise that the banks themselves are keen to influence the government in their rush to get a piece of China, as it is in their interests to do so: This is entirely understandable.
The press, however, which is supposed to inform the public, do not seem to distinguish between right and wrong here. In fact, their partisan reporting in this matter does lead one to suspect their motivation. Is it that they want Taiwanese banks in China to grease the wheels of an eventual unification of services?
Huang Tien-lin is a former national policy adviser to the president.
TRANSLATED BY PAUL COOPER
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