Concern over a possible flood of foreign and local currency into China following recent changes to the nation's stock market has prompted officials in Taiwan to plan measures to avoid a severe outflow, according to a recent report. China has eased restrictions on domestic investors wanting to buy foreign-currency B shares, leading to a 40 percent surge in prices over four days. Taiwan's main TAIEX market fell four percent in February.
Taiwan has formed a group of representatives from the Ministry of Finance, Central Bank of China (
The group will announce countermeasures within three months, the report quouted Yen as saying at a meeting with legislators yesterday.
Taiwan bars investment in China shares and offenders face fines of up to NT$5 million, a Mainland Affairs Council official said last Friday.
"Any securities company -- including securities advisors -- who violate the regulation will be punished according to the Securities Exchange Law. Directors and employees of said companies will be discharged from their positions and the company itself would have its license suspended for anywhere from six months to permanently," said Ding Ke-hwa (
However, the effectiveness of the regulation is strongly questioned by securities professionals as well as academics and legislators have called for changes in the policy.
"Whether the administration will be able to enforce the regulation against China's B shares is highly questionable," said Henry Cheng (鄭百亨), managing director of Manulife Funds Direct (Taiwan).
"The main problem is ... there are over 200,000 Taiwanese currently doing business in China. They can easily open accounts in China's securities companies. Taiwan authorities have no way of finding out who has done that since it's out of its jurisdiction."
"Meanwhile, a number of Taiwanese securities firms have set up operations in Hong Kong or China. These firms will accept Taiwanese investment [in B shares] through banks. Taiwan authorities will have difficulties regulating these foreign branches or even holding companies registered in other countries. I think Taiwan authorities are simply trying to deter further capital outflow to China, but I doubt it will be effective," Cheng added.
Lai Shyh-bao (
"From the perspective of individual investors, as much as NT$20 billion to NT$30 billion could flow into China's B shares from Taiwan in the first year," he said. "In the long term, there could be NT$100 to NT$200 billion of Taiwan's capital flow into China. Since it will be difficult for the capital to flow back to Taiwan, it could pose a threat by generating an industry hollow-out effect in Taiwan."
"There is significant price difference between China's A and B shares," said Lai. "Since the B shares have now been deregulated for Chinese citizens, the prices in B shares could gain 50 percent and narrow the difference between the two markets to 20 percent or 30 percent. During that process, billion of (US) dollar are expected to go into the market, including investments from Taiwan."
"What Taiwan authorities should do is loosen the `no haste, be patient' (
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