Taiwan Banks on Verge of Entering China Market

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BOLIS

E.O. 12958: N/A
TAGS: EINV EFIN ECON TW CN HK
SUBJECT: Taiwan Banks on Verge of Entering China Market

REF: 07 Taipei 2647


1. (SBU) Summary. Taiwan's Financial Supervisory Commission (FSC)
tells AIT that Taiwan is close to an agreement with Hong Kong and
China to allow Taiwan banks to take minority stakes in Mainland
China banks via their Hong Kong subsidiaries. The FSC says that
Taiwan and Hong Kong authorities are waiting for China's
concurrence, which is expected soon. End summary.


2. (SBU) The FSC confirmed local press reports that monetary
authorities in Taiwan, Hong Kong, and China are close to agreeing on
a mechanism which would allow Taiwan banks to acquire equity in
China-based banks through Taiwan bank subsidiaries in Hong Kong.
This matches comments the Chairman of Taiwan's Financial Supervisory
Commission (FSC) made to AIT in December that a deal could be
expected "in a few weeks" (reftel). According to Taiwan regulators
and banking contacts, China does not wish to have Taiwan banking
regulators perform on-site inspections in China, so the deal allows
for on-site inspection to be handled via the intermediary of the
Hong Kong Monetary Authority.


3. (SBU) Taiwan's Financial Supervisory Commission (FSC) has yet
to make a formal announcement, but Wang Hen-I, Director of the FSC
Banking Bureau's Division 1, confirmed to AIT that the FSC and Hong
Kong authorities have already reached agreement on supervisory
cooperation and are waiting for the PRC's concurrence. Wang said
Taiwan's private sector banks have been pushing the FSC to
facilitate their access to China.


4. (SBU) On February 13, Fubon Financial Holding President Victor
Kung confirmed his understanding that the Taiwan authorities are
poised to relax the existing ban on Taiwan investment in mainland
financial institutions, and said he expects the new policy to be
announced by the end of February. Kung clarified that the new rules
will allow Taiwan firms to buy up to 20 percent of a Mainland bank
(i.e., enough to facilitate Fubon's planned investment, via its Hong
Kong subsidiary, in China's Xiamen City Bank - reftel). Kung said
he was not aware of any PRC objections to the proposed arrangement.


5. (SBU) While any relaxation of cross-Strait banking rules would
be a major step welcomed by local Taiwan banks, the proposed
liberalization is a far cry from open access to the China market.
Taiwan banks would only be permitted to take stakes of up to 20% in
established Chinese banks. Taiwan banks are not able to set up their
own branches. Nothing in this arrangement makes any provisions for
Chinese banks entering the Taiwan market, as Taiwan still officially
bans all China investments in Taiwan.

Comment
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6. (SBU) Taiwan banks will see this liberalization as a big win.
Local banks tell AIT that their primary targets in the Mainland
market are Taiwan business and retail customers. As many of their
Taiwan customers have literally moved to China - with approximately
one million Taiwan passport-holders currently living in the Mainland
and many Taiwan businesses relocating operations there - Taiwan
banks have sought ways to attract their business on both sides of
the Strait. We expect Taiwan private sector banks will move
aggressively to strike deals with Mainland banks as soon as
possible. The first is likely to be Fubon Bank's long-pending
application to acquire a stake in Xiamen City Bank. Others are
expected to follow.

YOUNG