Taiwan banks plot ways to enter
China By Ting-I Tsai
TAIPEI - Shortly after Chen Shui-bian was
first elected president of Taiwan in 2000, Fubon
Financial Holdings presented him with an imitation
NT$2,000 banknote with Chen's photo on it when he
visited the firm.
Six years later, the
group's chairman, Daniel Tsai, was among the 100
Taiwanese business leaders lining up to shake
hands with Chinese President Hu Jintao after
attending the joint economic forum between the
Chinese Communist Party (CCP) and the Kuomintang
(KMT) - the island's largest opposition party - in
Beijing last April.
China is scheduled to
open up its banking sector fully in accordance
with the timetable set by the World Trade Agreement
by
the end of this year. Foreigners are flocking to
take advantage of the liberalized rules, and
Taiwanese companies such as Fubon don't want to be
left out. Still, politics may prevent the
administration from encouraging banks to go beyond
their current small presence on the mainland.
According to the annual report from the
People's Bank of China (PBOC), the mainland's
central bank, foreign banks have opened 226
offices, including branches, in China, while 25
foreign banks and other groups had invested some
US$20 billion in 20 Chinese banks by the end of
2005.
Taiwan has approved 34,878
investment projects in mainland China, totaling
about US$50 billion. But only seven Taiwanese
banks have set up representative offices there
since 2002. More and more mainland-based Taiwanese
businessmen have gradually developed cooperative
relationships with China's foreign and local
banks, rather than wait for Taiwanese banks to
show up.
"For Taiwan banks, operating in
China it is a matter of their survival," said
People First Party legislator Christina Liu, who
is also former dean at the National Taiwan
University's department and graduate institute of
finance. Additionally, she thinks the main chance
for Taiwanese banks on the mainland is already
gone.
Acknowledging "going west" to the
mainland could be the only chance for his bank's
survival, former Democratic Progressive Party
legislator and president of Taipei-based Sunny
Bank, Chen Sheng-hung, suggested that any window
of opportunity would vanish if Taiwanese banks
didn't go to China within three years.
"Without going, there will be no chance
[for our future]. But the government has imposed
so many regulations," Chen said.
Under
Beijing's regulations, Taiwanese banks'
representative offices on the mainland are
entitled to upgrade to branches after two years of
operation. But because of the lack of a memorandum
of understanding (MoU) and Taiwan's ban on the
establishment of Chinese banks' representative
offices on the island, chances for these Taiwanese
banks' upgrading in the short term are slim.
According to legislator Liu, who visited
the mainland recently, former PBOC deputy governor
Li Ruogo had suggested that "a channel to
communicate with Taiwan's central bank directly"
is necessary.
How an MoU for a bilateral
financial examination mechanism could be signed
and negotiated remains unknown, while calls for
officials to conduct unofficial negotiations under
cover of the two sides' civil organizations have
been getting louder.
On the other hand,
the Chen administration's failure to allow
mainland banks to open representative offices in
Taiwan is considered an irresponsible bureaucratic
blunder. Taiwan's Mainland Affairs Council resists
lifting the ban until related regulations
governing mainland professionals working in Taiwan
and mainland companies' investing in Taiwan are
enacted. It is not yet clear when the MAC plans to
introduce the necessary legislation.
Nonetheless, feeling their very survival
is at stake unless they get a part of the China
play, Taiwan banks are mulling various ways to get
around the bureaucratic obstacles and enter the
mainland. Some are operating through Hong Kong,
where they have established 13 branches.
In September 2003, Fubon Financial
Holdings, which has some 80% of its customers
operating businesses on the mainland, announced
its purchase of a 55% stake in Hong Kong's
International Bank of Asia. That permits it to
enter the mainland market under the Closer
Economic Partnership Arrangement, which grants
free tariffs to Hong Kong's service industries.
However, their applications to open their first
representative offices in Shenzhen or Dongguan are
still waiting for approval from the Chinese
authorities.
While waiting, Fubon was
reportedly bidding for the Asia Commercial Bank,
which has one branch in Shenzhen and
representative offices in Shenyang and Shanghai.
The bid failed, and Fubon now is reportedly
bidding for city-level banks in Fujian province.
Fubon Hong Kong's managing director and chief
executive officer, Lee Jin-yi, meanwhile, declined
to name any specific city except to say "wherever
possible, as long as there is a high number of
Taiwanese businessmen there".
Aside from
Fubon, Taiwan's Bank of SinoPac bought itself
access to a representative office in Beijing after
it purchased the Los Angeles-based Far East
National Bank in 1997. The northern Hsinchu-based
HiBank announced recently it would co-found a
financial management company with Hong Kong's Bank
of East Asia to provide loans to its
mainland-based Taiwanese customers. Cathay
Financial, which started last January to operate
its insurance business on the mainland based on a
company co-founded with China Eastern Airlines Co,
is also expected to expand its operations to
banking, while another leading financial holding,
Shin Kong, is reportedly negotiating with China
Southern Airlines and Air China to start a
joint-venture insurance company in mainland China.
Acknowledging the significance of
financial support to mainland-based Taiwanese
enterprises, the new Tianjin Binhai Economic Zone
is reportedly planning to allow Taiwanese banks to
operate in the zone without an MoU, thereby hoping
to attract more Taiwanese businessmen to invest
there. Fujian's new economic zone also vowed to
promote cross-strait financial exchanges, while
some economists in the northeastern province of
Jilin suggested the provincial government give a
green light to Taiwanese banks' providing loans to
the area's Taiwanese investors. Details of the
three zones' proposals are not yet clear.
At one of the pre-meetings of the
Conference on Sustaining Taiwan's Economic
Development, which is expected to recommend
lifting numerous bans on Taiwan's investing in the
mainland, academics, government officials,
political party representatives, and bankers
debated the simple issue of whether to categorize
"China" as part of the international market or
list it under a special section, as well as the
importance of "national security" versus
"commercial interests".
"Would it be
worthy to neglect Taiwan's national security
simply for making some money?" said Huang
Tien-lin, incumbent national policy adviser to the
president, in the meeting.
Furthermore,
another well-respected economist, Chang Ching-hsi,
warned that Taiwanese banks would need to
reimburse possible non-performing loans with their
headquarters' funds, should the mainland's economy
crash.
However, in the KMT-CCP economic
forum last April, Fubon Financial Holdings' Daniel
Tsai was not the only banker trying to get close
to China's president; ChinaTrust Financial
Holding's chairman Jeffrey Koo and Cathay
Financial Holdings' vice chairman Gregory Wang
both attended the meeting in Beijing. They have
all remained silent on their plans.
"In
the past three years, foreign banks and other
institutions such as Bank of America, HSBC,
Temasek Holdings and Credit Lyonnais have all
invested billions of US dollars in Chinese banks.
Why would they invest in China, if there was no
prospects?" said Lin Chu-chia, professor at the
National Chengchi University's department of
economics, who was also one of the attendees to
the Conference on Sustaining Taiwan's Economic
Development's cross-strait section.
Ting-I Tsai is a Taipei-based
freelance writer.
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