Taiwanese banks will be able to accept Chinese yuan deposits and offer yuan loans in Taiwan from next month. This is very different from when the banks were given permission to offer the same services for the US dollar and the yen. Leaving aside things like culture, language, history and education that make Taiwan and China very similar, interest rates and interest spreads are two very important factors when it comes to this issue.
Both the US and Japan are more developed than Taiwan, but their interest rates are lower than those on the New Taiwan (NT) dollar. There is thus no real incentive for Taiwanese to convert NT dollars into US dollars for savings accounts.
The same cannot be said of the yuan. Although Taiwan is more developed than China, the Chinese market is much larger than Taiwan’s. The factor price equalization that has occurred as a result of cross-strait industrial integration over the past 12 years will spread into Taiwan’s financial sector once yuan services are offered here. The factor price equalization across the Taiwan Strait is a kind of center-periphery process that presses down domestic salaries and pushes up unemployment.
The current loan interest rate in China is somewhere between 5 percent and 6 percent. If banks in Taiwan set deposit rates on the yuan to between 2 percent and 3 percent, the huge differences in the interest spread for loan and deposit services for the yuan compared to other currencies will mean that banks will place a higher priority on loan and deposit services for the yuan.
Even if the government limits the amount of NT dollars that can be exchanged each day, banks will work hard to promote yuan services, which are likely to completely overtake US dollars services and those of other currencies. Small and medium enterprises will be affected the most because the willingness of banks to lend money to such enterprises will drop and credit requirements are certain to become stricter.
Why would small and medium enterprises want to borrow yuan? The Chinese currency is still not an international currency and it is used within China for things like financing Chinese subsidiaries, new investments or real-estate purchases. While it will not move money directly out of Taiwan over to China, in reality, the process involved is no different from Taiwanese investments in China, nor is it all that different from Taiwanese businesses closing down their domestic production lines and moving their technology and funds to China.
The only difference is that this time around, we will see movement in Taiwan’s financial sector instead of in the corporate sector and we really cannot afford to overlook the negative impact this will have on Taiwan’s economic growth.
The government may argue that this is different to Taiwanese businesses moving their operations to China because funds from China will flow into Taiwan as a result of these new financial services. Although Chinese investment in Taiwan has been allowed for quite a few years now, what flows into Taiwan has been disproportionate to what flows to China. Even more worrying is that what flows from Taiwan into China are productive funds and financing, whereas Chinese investments in Taiwan are non-productive funds that are not helpful in improving Taiwanese industries and increasing employment, such as investments in the Taiwanese stock market and buyouts in industries such as media and distribution.
The recent inking of the agreement with the People’s Bank of China to build a yuan-clearing mechanism in Taiwan will be highly advantageous for banks, as pro-China academic and media outlets have stressed, but for the nation and its small and medium enterprises, it will be a huge disadvantage.
Huang Tien-lin is a former presidential adviser.
Translated by Drew Cameron
Congressman Mike Gallagher (R-WI) and Congressman Raja Krishnamoorthi (D-IL) led a bipartisan delegation to Taiwan in late February. During their various meetings with Taiwan’s leaders, this delegation never missed an opportunity to emphasize the strength of their cross-party consensus on issues relating to Taiwan and China. Gallagher and Krishnamoorthi are leaders of the House Select Committee on the Chinese Communist Party. Their instruction upon taking the reins of the committee was to preserve China issues as a last bastion of bipartisanship in an otherwise deeply divided Washington. They have largely upheld their pledge. But in doing so, they have performed the
It is well known that Chinese President Xi Jinping’s (習近平) ambition is to rejuvenate the Chinese nation by unification of Taiwan, either peacefully or by force. The peaceful option has virtually gone out of the window with the last presidential elections in Taiwan. Taiwanese, especially the youth, are resolved not to be part of China. With time, this resolve has grown politically stronger. It leaves China with reunification by force as the default option. Everyone tells me how and when mighty China would invade and overpower tiny Taiwan. However, I have rarely been told that Taiwan could be defended to
It should have been Maestro’s night. It is hard to envision a film more Oscar-friendly than Bradley Cooper’s exploration of the life and loves of famed conductor and composer Leonard Bernstein. It was a prestige biopic, a longtime route to acting trophies and more (see Darkest Hour, Lincoln, and Milk). The film was a music biopic, a subgenre with an even richer history of award-winning films such as Ray, Walk the Line and Bohemian Rhapsody. What is more, it was the passion project of cowriter, producer, director and actor Bradley Cooper. That is the kind of multitasking -for-his-art overachievement that Oscar
Chinese villages are being built in the disputed zone between Bhutan and China. Last month, Chinese settlers, holding photographs of Chinese President Xi Jinping (習近平), moved into their new homes on land that was not Xi’s to give. These residents are part of the Chinese government’s resettlement program, relocating Tibetan families into the territory China claims. China shares land borders with 15 countries and sea borders with eight, and is involved in many disputes. Land disputes include the ones with Bhutan (Doklam plateau), India (Arunachal Pradesh, Aksai Chin) and Nepal (near Dolakha and Solukhumbu districts). Maritime disputes in the South China