Last Wednesday the Cabinet lifted a ban on investments in the Chinese stock market. Suddenly onshore funds and discretionary accounts managed by domestic securities investment trust companies can invest in stocks on the Chinese market, as well as in red-chip shares and H shares on the Hong Kong and Macau markets.
In the past, the government was unwilling to allow onshore funds to invest in the Chinese market because of worries that it would lead to an outflow of funds. There was also concern that the Chinese market was unstable and lacked corporate transparency.
Have all these concerns suddenly disappeared? Will Taiwan be called on to open its markets to Chinese investment?
First, Taiwanese capital is still flowing into China. According to official Chinese statistics, by the end of last year, Taiwanese investment in China totaled US$2.1 billion -- approximately NT$60 billion.
From January to June of this year, China-bound investments amounted to US$600 million, down 33 percent from a year earlier, but China is still Taiwan's top overseas investment destination. This proves that the capital outflow to China hasn't stopped yet.
Second, the Chinese investment market is still unstable. Manipulation of financial markets is still a serious issue in China. The average price-to-earnings (P/E) ratio on the Shanghai Stock Exchange Composite index is over 40, and the Shenzhen index P/E ratio is 60.
This is far higher than the P/E ratio of 17 of the Taiwan Stock Exchange. In addition, many listed companies in China are financially unsound, which means that these figures cannot be verified and that real P/E ratios could be higher still.
Third, risks increase as the Chinese and Hong Kong stock markets soar. This year both the Chinese and Hong Kong stock markets have seen a major surge, and this has increased investment risk.
The Cabinet lifted the restrictions on domestic funds investing in China with the hope that the relaxation would allow investment funds to carry out some asset allocation and enhance their risk management abilities. In my view, however, this will only increase future risk while promoting investment in the Chinese and Hong Kong markets.
Beyond these questions, there is the concern that the government will be trapped in a dispute over whether to allow Chinese investments in Taiwan. The Cabinet has long insisted that allowing Chinese investment in the Taiwanese stock market would pose a danger to the nation's economic safety.
How can it now justify lifting the ban on onshore funds investing in the Chinese stock market when financial circles, for example, demand that it allow Chinese investment in Taiwan based on the principle of reciprocity?
Policies should be consistent and predictable. On one hand, the government restricts Taiwanese capital flows to China, while on the other hand, it adopts a policy of deregulation.
On one hand, it cautions the public about investing in Chinese stock markets because of high risk, but on the other hand, it relaxes restrictions and allows mutual funds to invest in China because that will enhance their risk management capabilities.
Such contradictory policies are quite difficult for investors to predict, and they are unfair to law-abiding people. The government shouldn't pump out policies just because it wants to offer "a benefit of the week." What the government should focus on now is how to offer consistent and reasonable policies to increase public confidence in both the government and its policies.
Fung Kuo-hao is an associate professor and dean of the Department of Public Finance and Taxation at Hsing Kuo University of Management.
Translated by Ted Yang
China has not been a top-tier issue for much of the second Trump administration. Instead, Trump has focused considerable energy on Ukraine, Israel, Iran, and defending America’s borders. At home, Trump has been busy passing an overhaul to America’s tax system, deporting unlawful immigrants, and targeting his political enemies. More recently, he has been consumed by the fallout of a political scandal involving his past relationship with a disgraced sex offender. When the administration has focused on China, there has not been a consistent throughline in its approach or its public statements. This lack of overarching narrative likely reflects a combination
Behind the gloating, the Chinese Nationalist Party (KMT) must be letting out a big sigh of relief. Its powerful party machine saved the day, but it took that much effort just to survive a challenge mounted by a humble group of active citizens, and in areas where the KMT is historically strong. On the other hand, the Democratic Progressive Party (DPP) must now realize how toxic a brand it has become to many voters. The campaigners’ amateurism is what made them feel valid and authentic, but when the DPP belatedly inserted itself into the campaign, it did more harm than good. The
For nearly eight decades, Taiwan has provided a home for, and shielded and nurtured, the Chinese Nationalist Party (KMT). After losing the Chinese Civil War in 1949, the KMT fled to Taiwan, bringing with it hundreds of thousands of soldiers, along with people who would go on to become public servants and educators. The party settled and prospered in Taiwan, and it developed and governed the nation. Taiwan gave the party a second chance. It was Taiwanese who rebuilt order from the ruins of war, through their own sweat and tears. It was Taiwanese who joined forces with democratic activists
Chinese Nationalist Party (KMT) Chairman Eric Chu (朱立倫) held a news conference to celebrate his party’s success in surviving Saturday’s mass recall vote, shortly after the final results were confirmed. While the Democratic Progressive Party (DPP) would have much preferred a different result, it was not a defeat for the DPP in the same sense that it was a victory for the KMT: Only KMT legislators were facing recalls. That alone should have given Chu cause to reflect, acknowledge any fault, or perhaps even consider apologizing to his party and the nation. However, based on his speech, Chu showed
RSS