While the signing of a memorandum of understanding (MOU) on cross-strait financial supervision will enable Taiwanese financial institutions to set up branches in China, local pundits warned of the potential impact on the financial market.
The signing of the MOU is expected to take place in the next round of negotiations between the Straits Exchange Foundation (SEF) and the Association for Relations Across the Taiwan Strait (ARATS), scheduled for next year.
“Benefits in signing this cross-strait MOU should not be overestimated,” Wang To-far (王塗發), an economics professor at National Taipei University, said yesterday. “Having this MOU does not guarantee protection of Taiwanese financial institutions’ rights in China.”
Given that the exact contents of the MOU are still unclear, Wang said Taiwanese banks should not have unrealistic expectations as it is unlikely China would sign anything disadvantageous to itself.
Aside from the benefit of enabling Taiwanese banks to set up branches in China, questions arise as to how the auditing of borrowers’ financial statements can be implemented and how much information can be obtained.
When loans provided to China-based Taiwanese businesses cannot be taken back, they will turn into bad debts, which will hurt banking institutions, shareholders and investors in Taiwan, Wang said.
Wang said that just because the MOU may help certain businesses, this did not mean that it would benefit Taiwan’s economy. He said the signing of the MOU would only prompt local financial institutions to move to China faster.
“This is almost the same as sending capital from Taiwan to sponsor China-based Taiwanese businesses. What is the benefit to Taiwan?” Wang asked.
Interaction between cross-strait financial industries should follow a step-by-step pattern and not be rushed, Wang said. If the financial systems between the two countries are too closely tied, Taiwan will be dragged down by China, and a financial crisis could result, Wang said.
Kenneth Lin (林向愷), an economics professor at National Taiwan University, said although he does not oppose the signing of the MOU, the public needs to know what the contents are, and how supervision and auditing can be put into practice.
Without these, everything is just empty talk, and would probably create more financial problems for Taiwan, Lin said.
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