IS THIS A TAIWAN BANK?

C O N F I D E N T I A L SECTION 01 OF 02 TAIPEI 000172

SIPDIS

E.O. 12958: DECL: 01/19/2016
TAGS: ECON EFIN PINR TW CH HK
SUBJECT: IS THIS A TAIWAN BANK?

REF: 05 TAIPEI 4938

Classified By: AIT Director Douglas Paal, Reason 1.4 d


1. (C) Wells Fargo Asia Regional Manager/Senior Vice
President recently contacted AIT/Econ for advice on a problem
involving the Taiwan-China relationship. The problem he
described illustrates some of the complexities in
cross-Strait banking, the mixed ownership of multinational
companies, and the different approaches of different Taiwan
government agencies.

Who Owns What
--------------


2. (C) Wells Fargo has owned 20% of Shanghai Commercial Bank
(Hong Kong) (SCBHK) for 37 years. SCBHK is also 57% owned by
Shanghai Commercial Savings Bank (Taiwan) (SCSB) and 23%
owned by the municipal government of Shanghai. In turn,
SCBHK owns 3% of the PRC state-controlled Bank of Shanghai.
In addition to 43 branches in Hong Kong, one in the UK, and
three in the U.S., SCBHK has a fully-licensed foreign branch
in Shenzhen, China and a rep office in Shanghai. SCBHK has
about US$10 billion of assets in Hong Kong, about 22%
capitalized. SCBHK in turn owns significant equity in SCSB.
The major shareholders of SCSB Taiwan are the Yung and Lee
families, which fled Shanghai for Hong Kong in the late
1940,s, but still have deep political and economic
connections on both sides of the Taiwan Strait. Given that
SCSC originated in China, some 28% of equity is still held by
people residing in China. These shares have been put into a
trust and are managed separately.

Is SCBHK a Taiwan Bank?
--------------


3. (C) SCBHK wishes to convert its rep office in Shanghai
into a fully-licensed foreign branch as well, but has been
unable to obtain approval (or non-objection) from Taiwan
banking regulators. Given the 57% ownership by SCSB of SCBHK
Taiwan banking regulators assert that their permission is
pre-requisite for any expansion into mainland China by SCBHK.
A little over a year ago, SCBHK obtained permission
(actually, a letter of non-objection) from Taiwan banking
regulators (the Financial Supervisory Commission (FSC)
Banking Bureau) to convert its (then) rep office in Shenzhen
into a fully-licensed branch.


4. (C) However, shortly after the FSC letter of
non-objection was issued, China passed its Anti-Secession Law
in early 2005 which sent cross-Strait relations into a
temporary tailspin. In response to the PRC action, Taiwan's
Mainland Affairs Council ordered the FSC letter of
non-objection rescinded. Although the letter was rescinded,
SCBHK had already established a fully-functional,
fully-licensed branch in Shenzhen. Taiwan banking regulators
are fully aware of this unique situation, but have done
nothing about it, leaving SCBHK as the only "Taiwan" bank
with an operational branch in China.


5. (C) Taiwan regulators currently take the view that no
Taiwan banks should establish branches in China until there
is an agreement on regulatory supervision of banks between
Taiwan and China. However, so far, political sensitivities
have made it impossible to establish such an agreement.


6. (C) Wells Fargo wanted AIT's advice on whether to
approach Taiwan regulators with these facts in hope of being
exempted from the regulations covering Taiwan banks. AIT
offered to relay discreetly the question to banking
regulators (Wells Fargo said it would discuss the AIT offer
with SCBHK's Taiwan shareholders before responding to our
offer),but believes there is little to no chance of SCBHK
being considered anything other than a Taiwan bank as long as
it is 57% owned by a Taiwan bank. However, AIT believes that
if Wells Fargo were to increase its stake to become the
largest shareholder, a good case could be made that SCBHK is
no longer a Taiwan bank.


7. (C) Comment: This case provides an example of the
disarray of Taiwan agencies on cross-Strait policy and
implementation and its impact on U.S. companies, as well as a
marvelous description of the high level of integration in
business circles throughout Greater China, and especially
across the Strait. People talk about how complex and
sensitive relations are across the Strait, but as we
previously noted in the airline business, people on both
sides of the Straits often have well-established relations,
know each other's business, and have real commercial
opportunities that they can exploit, but Taiwan and Beijing
policies prevent the companies from implementing rational
arrangements.


8. (C) Leading families in Greater China often hedge their
bets by assigning different branches of the family to
different geographic locations, or, as we often see in
Taiwan, employ a deliberate strategy of having some members
of the family support the ruling party and others support the
opposition parties. The emerging results are global business
networks that transcend country, culture, and language, and
that are well-positioned for an increasingly important role
in a globalized economy. These mixed institutions offer some
unique channels to strengthen practical cross-Strait
cooperation, but only if authorities on both sides are
prepared to be flexible and supportive. Post January 1,
prospects appear dim on the Taiwan side at least for the
short term.
PAAL