Taiwanese financial firms to be allowed to invest in China's banks

Taipei, Jan. 27, 2005 (CENS)--The government here is mulling allowing Taiwan's financial holding firms and banks to invest in commercial banks based in mainland China, in a bid to help them tap the financial markets on the other side of the Taiwan Strait.

Insiders said that if Taiwan's financial institutions invest in mainland Chinese commercial banks, they can more efficiently help Taiwanese investors in the mainland solve financial problems.

The government here has already mapped out relevant relaxation measures. Under the measures, domestic financial holding firms and banks can buy shares of mainland Chinese commercial banks through their overseas subsidiaries. But the maximum amount of such investment by any domestic bank is set at 40% of the balance of its paid-in capital minus accumulated losses. In addition, the capital adequacy ratio of any investing bank, with the investment figure deducted from the capital, should not be lower than 8%; and that of any investing financial holding firm should not be less than 100%.

Besides, the financial rules set by mainland Chinese authorities stipulate that any foreign investor cannot purchase an over-20% stake in any targeted local bank in the mainland, and the percentage cannot exceed 25% in case of more than one foreign investor in the same bank.

Insiders disclosed that there are six domestic financial holding firms and 11 banks qualified to invest in commercial banks in the mainland. The six financial holding firms include Cathay Financial Holding Co., Mega Financial Holding Co., Fubon Financial Holding Co., Chinatrust Financial Holding Co., Taishin Financial Holding Co., and Sinopac Financial Holding Co. And the 11 domestic banks are Bank of Taiwan, Land Bank of Taiwan, Taiwan Cooperative Bank, Chinatrust Commercial Bank, International Commercial Bank of China, TaipeiBank, Chiao Tung Bank, Taishin International Bank, Bank Sinopac, Shanghai Commercial & Savings Bank, and International Bank of Taipei.

Currently Taiwan's domestic banks are allowed to establish representative offices in the mainland, but the unhealthy cooperation mechanism between the two sides of the Taiwan Strait has undermined the performances of the representative offices there. If domestic financial institutions are allowed to invest in mainland Chinese commercial banks, it will be easier for them to tap the financial market there and reinforce their strength in regional financial market in Asia.

Since foreign banks are allowed to invest in mainland Chinese banks, some foreign banks , including Citibank and Hongkong & Shanghai Banking Corp., have already invested in some banks there. To boost the competitiveness of Taiwan's financial institutions in the mainland, the Cabinet-level Financial Supervisory Commission (FSC) here has decided to further relax the restrictions on cross-strait financial investment by domestic financial holding firms and banks.

Market observers said FSC's relaxation measure would help Taiwan's financial institutions tap the financial market in mainland China. In addition, they can better serve their clients in the mainland, helping them solve financial problems through the invested banks there. However, such investment is accompanied by higher risks due partly to relatively weak financial structures of the mainland's banks and partly to the fact that as minor shareholders, foreign investors can hardly influence the policies of the invested banks.