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Central bank chief defends foreign investment cap

Central bank (中央銀行) Gover-nor Perng Fai-nan (彭懷南) said the US$3 billion cap on single foreign investments in domestic stocks is "more than enough," after it was raised by a half earlier this month.

"We don't want one com-pany's investment to be too big," Perng said.

"Diversification can reduce the risk," he added.

Foreign investors now account for about a fifth of stock market capitalization in Taiwan.

The cap, in part, may be insurance against fears that China might try to exert economic muscle over the nation.

Chinese President Jiang Zemin (江澤民) has approved the establishment of a US$10 billion government fund to buy stakes in Taiwanese companies, Hong Kong's Open magazine reported in July.

Minister of Finance Yen Ching-chang (顏慶章) last week said he would "try his best" to persuade the central bank governor to relax the investment limit even more in the long run.

"We'd like to liberalize capital movement in our market," the finance minister said in an interview last week on the sidelines of a rice-wine promotion.

The policy debate comes as Taiwan is deregulating equity markets and trying to boost a stock market that fell to an eight-year low in October.

Taiwan's benchmark index has plunged 16 percent in the last 12 months as the economy slipped into recession.

Growth contracted 4.2 percent in the third quarter from a year ago.

The central bank has sliced 2.5 percentage points off its key lending rate in 11 rates cuts since December, taking rates to a record 2.25 percent.

Perng declined to comment on any future interest rate changes.

That decision rests with the central bank board of gover-nors, Perng said, which will hold its quarterly meeting next month.
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