(SBU) SHANGHAI UPBEAT ON OPENING TO TAIWAN FINANCIAL FIRMS

UNCLAS SECTION 01 OF 02 SHANGHAI 000237 SENSITIVE SIPDIS STATE FOR EAP/CM, DAS DAVIES TREASURY FOR OASIA/INA -- DOHNER/HAARSAGER/WINSHIP TREASURY FOR IMFP -- SOBEL/CUSHMAN USDOC FOR ITA DAS KASOFF, MELCHER, MAC/OCEA NSC FOR LOI, SHRIER STATE PASS CEA FOR BLOCK STATE PASS USTR FOR STRATFORD/WINTER/MCCARTIN/KATZ/MAIN STATE PASS CFTC FOR OIA/GORLICK AIT TAIPEI PLEASE HOLD FOR AIT KAOHSIUNG E.O. 12958: N/A TAGS: CH ECON EFIN ETRD PGOV PREL TW SUBJECT: (SBU) SHANGHAI UPBEAT ON OPENING TO TAIWAN FINANCIAL FIRMS REF: TAIPEI 537; SHANGHAI 026 ¶1. (SBU) Summary. At a recent financial forum, Chinese officials and financial sector professionals offered an upbeat assessment of the potential for Taiwan financial firms to enter the mainland market. The panelists cited opportunities offered by the current financial crisis, as some Western financial firms are drawing down their investments in China. One Chinese official said that policy incentives for Taiwan financial firms would be better than those offered Hong Kong under their bilateral services opening agreement. However, one Taiwan participant noted that the two sides still have not been able to sign a memorandum of understanding on financial services opening. End summary. ¶2. (U) A discussion titled "Win-Win Financial Cooperation Between Shanghai and Taiwan" was held May 15 as part of the Lujiazui Forum 2009 in Shanghai. Participants included Han Mingzhi, Director-General, International Department, China Banking Regulatory Commission (CBRC); Yang Jianrong, Director-General, Taiwan Affairs Office, Shanghai Municipal Government; Xing Wei, Deputy Commissioner, Shanghai Bureau, China Insurance Regulatory Commission (CIRC); Qu Quiping, President and Vice Chairman, Bank of Shanghai; James Liu, Vice President, Shanghai Stock Exchange; Chi Shive, Chairman, Taiwan Stock Exchange Corporation; Daniel M. Tsai, Chairman, Fubon Financial Holding Co., Ltd.; and Steve H. Y. Hsieh, CEO and President, First Sino Bank. ============================ Progress on Cross-Strait Financial Cooperation ============================ ¶3. (SBU) CBRC's Han began the discussion with a review of Taiwan's presence in the mainland's financial markets. Han said that Taiwan first appeared on the scene when a Taiwan financial firm established a representative office 12 years ago. The Taiwan contingent today includes two banks, 3 bank representative offices, and 3 insurance representative offices, along with others making up 50 Taiwan financial institutions on �0A;the mainland. Han noted that there are 11 Taiwan firms listed on the mainland stock markets. In addition, over the years mainland banks have lent some RMB240 billion (Note: Approximately $35 billion. End note.) to Taiwan firms. ¶4. (SBU) Han said that further steps forward are likely to follow the April 25 signing of a cross-Strait agreement on regulation of financial services (see reftel). As an example, Han said that announcements of further cooperation could be made the following day at a forum in Fujian Province. (Note: According to Chinese media, a large-scale unofficial cross-Strait forum was kicked off in Xiamen on May 16, but Chinese media reports did not emphasize new aspects of financial sector cooperation. End note.) ============================ Financial Crisis Offers Opening for Closer Ties ============================ ¶5. (SBU) Both sides can benefit from enhanced financial ties in the wake of the global financial crisis, said several of the Chinese members of the panel. Bank of Shanghai's Qu said that "the idea is to face the crisis together." He went on to say that Taiwan banks would be welcomed--his own bank has had ten years of cooperation and exchange with the Taiwan-based Bank of Shanghai. Fubon's Tsai raised a laugh in the room when he said that Western financial firms are slowly retreating from China at present, so no "foreigners" will complain if Taiwan competitors start to take market share. (Note: Several Western financial institutions have recently reduced their stakes in Chinese banks. End note.). CIRC's Xing said that "especially given the SHANGHAI 00000237 002 OF 002 environment created by the crisis," Taiwan financial firms could expect to have new opportunities on the mainland. ¶6. (SBU) Shanghai's plan to be China's international financial center--part of the Shanghai leadership's plan to outgrow the current crisis--was raised by various panelists as a driver of deeper cross-Strait ties. CIRC's Xing said that Taiwan has the insurance professionals that the mainland needs to develop its insurance market, as he has found out through academic and training exchanges with Taiwan begun in the nineties. Fubon's Tsai said he would like to see a joint venture of two financial companies--since currently there was only a cross-Strait joint venture between an insurance company and a non-financial company. ============================ Shanghai Is Offering Incentives ============================ ¶7. (SBU) Another theme among the Chinese panel members was that Shanghai would be able to provide additional incentives to Taiwan financial firms. CIRC's Xing said that the Closer Economic Partnership Agreement (CEPA) signed by the mainland and Hong Kong could be a model for flexibility in allowing Taiwan firms greater access. Under CEPA's auspices, Hong Kong-based Taiping Insurance was able to set up business in the mainland earlier than the standard regulations allowed, said Xing, because the two sides agreed that Taiping would be "reentering" the market rather than establishing a new business. Under a cross-Strait financial services agreement, said Xing, Taiwan could get even greater preferences. ¶8. (SBU) Shanghai Taiwan Affairs Office's Yang took this a step further, suggesting that Shanghai would be granted authority to establish trial zones where the new cooperation could be test piloted. Shanghai Stock Exchange's Liu later backed up this point, noting that the first foreign-invested enterprise to list on the Shanghai market was a Taiwan firm. ============================ Where's the MOU? ============================ ¶9. (SBU) A point of contention emerged when Fubon's Tsai said the lack of a memorandum of understanding (MOU) on financial cooperation between the two sides was holding up progress. He raised another laugh from the crowd when he pointed to CBRC's Han and said facetiously, "I'm not trying to put any pressure on Han Mingzhi, but this is the problem." In the Q&A period, Han took the floor of his own accord to offer a response. Han counseled Tsai to not be overly concerned about signing an MOU, since after all, "that would only be the beginning of the process to reach agreement." ============================ Comment ============================ ¶11. (SBU) The Chinese side was clearly well-prepared to offer general statements of the benefits to the Taiwan side of a bilateral agreement to open financial services. However, the inability to come to agreement on specific discussion points, as exemplified by the Taiwan executive's frustration with the lack of an MOU, raises questions about how quick progress will be. Also not discussed in this open forum was the possibility that mainland financial firms--now among the world's largest by market capitalization--could surge into the Taiwan market, and potentially overwhelm some of the local players in that smaller market; fear of that possibility could be another potential roadblock toward progress. SCHUCHAT