Share the article
twitter-iconcopy-link-iconprint-icon
share-icon
Asia-PacificSeptember 30 2007

Getting on with the job

Despite a recent lending crisis, Taiwan has quietly assumed an enviable position in global finance, with ever closer economic ties to China. Brian Caplen reports.
Share the article
twitter-iconcopy-link-iconprint-icon
share-icon

“The situation is quiet but we are not out of the woods yet,” says the chairman of Taiwan’s Financial Supervisory Commission (FSC), Mr Sheng-Cheng Hu, of the efforts to clean up the island’s banking sector following the consumer lending crisis.

Last month one of the troubled banks, Ta Chong Bank, secured Corsair Capital, a US private equity fund, as an investor alongside Carlyle in a bid to recapitalise. Altogether five banks have been taken over by the government since the crisis began but while Taiwan has had its own debt problems, the island’s exposure to the US subprime problem is relatively small – $2.5bn at the most – and the economy remains strong.

Mr Hu, who was formerly the minister of the council for economic planning and development (CEPD), took over the role of chairman of the FSC early this year when his predecessor Shih Jun-ji resigned over the failure to prevent a run on Chinese Bank.

“We had to jump in and take control of the problems,” said Mr Hu during a visit to London last month to promote Taiwan as an international financial centre. Investors who have read only about the recent troubles may have missed the progress made in opening up Taiwan to international investment.

Opening up

Mr Hu’s response to the situation is to improve regulation but also to globalise and privatise as a way of bringing new expertise and skills to the sector. “We need to improve the competitiveness of the industry. We need to allow foreign capital to come into Taiwan and take over our banks and we need to allow our banks greater freedom to go overseas.”

In fact, foreign capital now accounts for more than 30% of the equity in nine out of the island’s 14 financial holding companies, the leading private sector banks. Notable deals have included Standard Chartered’s purchase of Hsin-Chu Bank, Citi’s purchase of the Bank of Overseas Chinese and ABN AMRO’s investment in Taitung Bank.

“This allows small banks to join global chains and is helping to change the structure of the industry and bring new banking products to Taiwan,” says Mr Hu.

But he admits that privatisation of Taiwan’s state-owned banks has been slowed down because of public concerns about the process. All the same, there are plans to consolidate three government banks under one financial holding company (FHC) to increase its competitiveness and to sell government shares in other banks. On regulation, Mr Hu sees the FSC as the last line of defence only when corporate governance at the firm level and market disclosure breaks down.

Despite all the attention that is given to the political conflicts between Taiwan and China, the real story is the integration of the two economies. Some 42% of export orders received by Taiwanese companies are now outsourced to China and other neighbouring countries, and China accounts for 27.2% of Taiwan’s total trade – its largest trading partner – compared with 12.9% for the US and 11.6% for Europe.

China has been receiving 70% of Taiwan’s outward foreign direct investment (FDI) in the past few years and accounts for 53.2% of the cumulated outward FDI as of 2006.

Local rivals

The finance industry accounts for 11% of Taiwan’s gross domestic product (GDP) but in terms of its role as an international financial centre, Mr Hu sees it competing against Hong Kong, not Shanghai. The aim is to promote Taiwan as a regional fund raising and asset management centre.

“In terms of reforming the capital markets we have improved corporate governance and freed up capital flows by getting rid of qualified financial investor status,” says Mr Hu.

“Our next step is to consolidate the exchanges [main, futures and over-the-counter] to facilitate co-operation with foreign exchanges. There needs to be a common platform with the same settlement process and same administrative support,” says Mr Hu. A significant move in the development of the debt market was the raising of international issues in foreign currency by Deutsche Bank and BNP Paribas.

On the globalisation side, Taiwanese banks and companies are making such an impact in markets as disparate as Vietnam and California that one banker recently claimed that “the sun never set on his bank”. Quietly, Taiwan has assumed a position in global finance far beyond most analysts’ expectations and is likely to continue doing so.

cp/5/p102table.jpg

Was this article helpful?

Thank you for your feedback!