November 16 2009Taiwan announced on Monday night that it had signed a financial MOU with China that will allow Taiwan’s banks to tap China’s massive market and pave the way for banks on both sides to invest in each other.
The long-overdue agreement, which will take effect in two months, does not amount to much on paper.
Both sides had already made commitments to open their markets to every other World Trade Organisation member when they joined the WTO several years ago, but had simply not applied their WTO commitments to the cross-Strait relationship until now.
The MOU includes three agreements that will lead to closer cooperation in banking, insurance and securities, Taiwanese officials said.
Taiwan’s Financial Supervisory Commission Chairman Sean Chen represented Taiwan in signing the agreements while head of the China Banking Regulatory Commission Liu Mingkang signed for China, the regulators said in separate statements.
For China’s “big four” state banks, Taiwan is little more than a small, overcrowded market with high political risk from the independence-minded opposition party.
The agreement also falls short of most Taiwanese bankers’ expectations. Daniel Wu, president of Chinatrust Financial, said Taiwanese banks would still be worse off than Hong Kong banks under the agreement.
“Compared to CEPA [the closer economic partnership agreement signed between China and Hong Kong] Taiwanese banks still need to wait an additional two years after setting up a branch before they could start doing renminbi business,” according to China’s WTO commitment, Mr Wu said. Chinese banks, by contrast, will now be able to apply for full access to the Taiwan market.
Despite its practical shortcomings, symbolically the agreement has given the anaemic Taiwan banking sector a much-needed shot in the arm.
Shares in listed Taiwanese banks, partly driven by hope of mergers and acquisition activities by large Chinese banks, have risen sharply since the end of last year, when prospects of signing the agreement first emerged.
The agreement also comes as Taiwanese banks are set to face stiffer competition domestically from foreign competitors, many of which had acquired small, underperforming Taiwanese banks during a government-led effort to reform the industry in 2006.
Banks such as HSBC and Ta Chong Bank, which private equity firm Carlyle has taken a stake in, are both planning to expand their branch networks in Taiwan.
Stephen Green, chief executive of HSBC who travelled to Taipei earlier this month for the bank’s first-ever board meeting in Taiwan, said HSBC had “made significant progress” in building up its Taiwan banking operations over the past few years and plans to become locally incorporated next year.
Despite the increasing activity in the sector, analysts say that structural issues remain with Taiwan’s banking sector. Taiwan has long been one of the most saturated and unprofitable banking markets in the world, with almost 40 local and more than 30 foreign banks for 23m people. Average return on asset was just 0.14 per cent in August.
Expanding into China, where more than 700,000 Taiwanese currently reside, is the inevitable next step for most Taiwanese banks, but “this is not something that will yield a significant contribution within one or two years,” says one executive at a Taiwanese bank.
Others say that while Monday’s agreement was an important first step, China’s financial sectors remain only partially open.
Yen Ching$-chang$, chairman of Yuanta Financial, Taiwan’s biggest brokerage company, said that while Yuanta would like to expand into China, it would not do so if, as is the case under current rules, “we need to have a local partner and the shareholding of Yuanta [in the joint venture] is less than 50 per cent”.
Commenting more broadly on Taiwan’s closer economic ties with China, Mr Yen said: “With such a heavy reliance on China’s market, can we forget the saying that one should not put all the eggs in one basket?”
AP news
