Taiwan, China ink financial pact, to take effect soon

November 17, 2009

Chairman of Taiwan's Financial Supervisory Commission Sean Chen speaks during a news conference in Taipei County November 16, 2009. Taiwan has signed a financial service pact with China, allowing its banks to tap China's massive market and paving the way for banks on both sides to invest in each other, a source said on Monday. The much-anticipated pact, or memorandum of understanding (MOU), will mainly cover cross-border financial supervision. REUTERS/Stringer (TAIWAN BUSINESS POLITICS) TAIWAN OUT. NO COMMERCIAL OR EDITORIAL SALES IN TAIWAN By Faith Hung
TAIPEI, Nov 16 (Reuters) – Taiwan has signed a financial service pact with China, the Taiwan government said on Monday, allowing its banks to tap China’s massive market and paving the way for banks on both sides to invest in each other.

The much-anticipated pact, or memorandum of understanding (MOU), will mainly cover cross-border financial supervision and is expected to take effect within two months from now, Taiwan’s
Financial Supervisory Commission said in a statement.

Taiwan also aims to complete regulatory amendments to allow Chinese banks to invest in the island’s lenders, the commission’s chairman Sean Chen told a news conference, which analysts said will help boost Taiwan’s financial shares.

“We’re preparing to make amendments to our regulations,” Chen said. “Once the MOU becomes effective, Taiwan’s banks will be able to submit applications to set up branches in China.”

The issue of most concern to investors — details for
Taiwanese and Chinese financial firms investing in each other — will be discussed in a free trade pact, or the so-called economic cooperation framework agreement (ECFA).

Taiwan aims to sign the ECFA early in 2010, the government has said.

The financial services MOU comes as Taiwan and China have agreed to open their financial markets to each other as part of easing ties between the formal political rivals since Taiwan President Ma Ying-jeou took office last year.

(For details of the agreement in Chinese, please click here. For a Reuters Q&A on the agreement, please click here. )

Trade relations across the Taiwan strait have thawed
following a decades-long freeze, with bilateral deals promoting tourism and shipping links already concluded.

FURTHER EASING OF TIES
Taiwan’s banks will be late comers to China’s booming market, which is dominated by powerful local and global players such as Bank of China and HSBC.

While the island’s lenders such as Fubon, Chinatrust are strong in consumer banking businesses such as credit cards and wealth management, they won’t be able to compete head-to-head with China’s biggest players in the near-term, analysts have said.

“The signing of the MOU is just the beginning of financial cooperation on both sides,” said Chu Yen-min, senior vice president at Taiwan’s KGI Securities.

“We’re expecting more opening in the financial sector when both parties sign the ECFA agreement,” Chu said.

A flurry of acquisitions by Chinese banks are expected after Taiwan seals the ECFA deal with China.

Cathay Financial, Fubon, Taishin — Taiwan’s top three listed financial holding companies by assets
– and top credit card issuer Chinatrust are seen as potential targets for China banks, analysts said.

China’s top lenders, including Bank of China, Industrial & Commercial Bank of China and Bank of Communications, would be interested in investing in their Taiwanese counterparts, industry sources said.

Taiwan’s banking and insurance sub-index has jumped 55 percent so far this year on expectations the MOU will help banks establish a foothold in the Chinese market.

The main index had climbed 70 percent during the same period.

(Additional reporting By Roger Tung; Editing by Joseph Chaney
and Lee Chyen Yee)
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