Overexposure of Taiwanese banks to the Chinese financial sector by allowing Taiwanese financial services providers into China, as stipulated under the cross-strait service trade agreement, would expose Taiwan to potential Chinese financial market upheaval, according to a government national security assessment report.
The trade agreement was signed in Shanghai, China, in June last year.
Under the agreement, Chinese investors would be able to hold up to a 10 percent stake in Taiwanese banks, but of the 16 Taiwanese financial institutions, more than half are privately managed — including heavyweights such as CTBC Financial Holding Co — the report says.
This means that theoretically more than half of the financial sector could end up in China’s pocket, the report says.
Chinese-funded banks would be able to increase the Taiwanese banking sector’s reliance on Chinese funds by offering large loans at low interest rates, after which China could, through threats to deny loan extensions or pull their money out, force the banks to voice opinions on certain issues to try to influence national policy, the report says.
Personal information is also at risk as Chinese-funded banks could obtain such information through the joint credit information center, posing considerable risk to the security of people’s livelihoods and assets, the report says.
However, former national policy adviser Huang Tien-lin (黃天麟) said that the report focuses more on internal matters and downplays the potential negative consequences of allowing Taiwanese banks to establish themselves in China.
If enough funding from Taiwan has been “exposed,” China would have the ball in its court and have a complete say over Taiwan’s financial security, Huang said, adding that would be the greatest risk of liberalizing the financial system.
Huang said the report only states the risk of bankruptcy for Taiwanese banks with too much capital invested in China if they run into obstacles with their Chinese branches.
Huang said that as long as the boards of the financial institutions remain in Taiwanese hands — which should be the case unless the companies’ management has critically failed beyond even a government bailout — Chinese investors would have next to no chance to influence the boards.
As for the report’s claim that Taiwanese personal information would be available to China, Huang said that was the price you pay for liberalization and the same principle applies around the world.
Huang said Taiwan has already been hurt by its industry moving to China, directly causing lower economic growth and lower real wages, adding that if the banking sector were to move to China, all financial development and assets would also move to China.
The move would make it even more difficult for Taiwanese small and medium-sized enterprises to access funding, rubbing salt in Taiwan’s economic wounds, Huang said.
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