Were I to say that nothing in the cross-strait service trade pact will benefit Taiwan, I would be accused of letting ideology color my judgement. And yet, an objective look at what has been deregulated and the impact this is to have on Taiwan shows that such an assertion holds water. When the Economic Cooperation Framework Agreement (ECFA) was first signed, the government proclaimed a coming “golden decade.” Back then, I said the term ECFA would more aptly refer to an “eventual colonization framework agreement” that would do nothing to Taiwan’s benefit and everything to its detriment. Three years on, the facts bear this out. Millions of new graduates are at their wits’ end, facing starting salaries of only NT$22,000 (US$737) per month.
President Ma Ying-jeou (馬英九) would have us believe this service trade pact is an “opportunity long due,” and that deregulation of the financial services industry will bring business into Taiwan’s financial services sector. Indeed, I am sure the government is particularly proud of the “financial services” part of the pact. What people need to understand is that, when it comes to the financial services sector, it may be true that initially the financial sector will have business coming out of its ears, but this is the beginning of a disaster for Taiwan, and even the Taiwanese financial services industry itself.
Why do I say this is the beginning of a disaster? You need only look at how enthusiastically the financial services industry has flocked to China. Confucius said: “Going too far is as bad as not going far enough” (過猶不及). This is a sentiment deemed fundamental to economists and yet, even now, there are many financial holding companies preparing to increase their investments in China and plough billions into local banks, mergers and acquisitions, and stocks and securities, and opening overseas branches in Fujian Province.
Initial estimates suggest that Taiwanese banks have either already transferred, or are preparing to transfer, not less than NT$160 billion in core capital to China. This is another example of integration with China that will surely see the further marginalization of Taiwan, just as the exodus of Taiwanese manufacturing to China did in the past.
Closely related to this is the deregulation of Chinese yuan deposits in February that, in the short four-month period to the end of June, has seen the accumulation of more than NT$360 billion worth of Chinese yuan in domestic and offshore accounts. This figure is increasing at the rate of NT$50 billion per month, giving a projected annual increase of NT$600 billion, a rate and amount equivalent to half Taiwan’s average annual increase in national M2 deposits — NT$1.2 trillion — in the decade from 2001 to 2011.
What is the purpose of accumulating all these yuan deposits? Naturally, they are to be used for providing financial services in China. This increase in credit financing in China means squeezing the amount of credit available to be extended in Taiwan.
To put it another way: In the past we experienced a manufacturing exodus to China and Taiwanese manufacturers did not take out loans in Taiwan. However, now that the banks are making the move across the Taiwan Strait, there will be little credit to be had for companies who do want to take out loans in Taiwan. It simply makes no sense to suggest that this situation will actually help Taiwan’s economy pull itself out of its current malaise. This yuan-deposit financial service trade deregulation issue goes some way to explaining why the response to the moratorium on the capital gains tax on securities transactions was weaker than expected.