Taiwan may start allowing mainland Chinese firms to raise funds through yuan-denominated share sales and equity listings in the island this year, burnishing its allure as an offshore renminbi hub, according to the chairperson of Taiwan Financial Holdings and Bank of Taiwan.
“There aren’t many channels for yuan repatriation right now in Taiwan. We want to diversify our range of yuan products,” Lee Jih-Chu said in an interview in Hong Kong. “I am optimistic that by the end of the year Taiwan will have yuan-traded equities.”
Financial ties between China and Taiwan have picked up since the two sides inked a renminbi clearing deal early last year. Business prospects have also improved due to easier regulations for Chinese and Taiwanese banks to buy stakes in peers across the straits.
According to Taiwan central bank data, renminbi deposits in the island rose 18 percent to 182.6 billion yuan in December from the previous month. The huge deposit pool reflects limited investment choices in the Chinese currency. Taiwan has not yet launched the Renminbi Qualified Foreign Institutional Investor (RQFII) program as it is still awaiting parliamentary approval for a bilateral trade and services pact.
Banks, meanwhile, are also pushing for yuan insurance products this year, said Lee, who is head of Taiwan’s Bankers Association and former vice chairperson of the island’s Financial Supervisory Commission. “The renminbi business is now profitable to every Taiwanese lender.”
Taiwan is delaying a plan to launch the so-called T-shares until 2015 because of complexity in bilateral regulations and tax collection, Reuters reported on Dec. 20, citing unnamed government sources. T-shares may be defined as stock issued by companies that are at least 30 percent owned by Chinese firms, although authorities are still hammering out the details.
Other hurdles include concerns over the transparency of Chinese financial reports, the very same issue that has prompted US regulators to investigate accounting irregularities by US-listed Chinese companies.
As the doors open wider across the straits, Taiwanese banks are on the lookout for mergers and acquisitions (M&A) opportunities to expand beyond the crowded home market.
“I think Taiwanese banks would like to take such moves given that the China market is big and rife with opportunities. I believe the industry is already actively making assessments,” Lee said. “Bank of Taiwan won’t rule out such steps.”
She said M&As will allow lenders to cash in on the local market quickly, compared with the slow process of opening branches and sub-branches.
But the bank’s status as a government-owned lender makes M&A deals difficult, she said, citing budget constraints. Bank of Taiwan presently has a branch in Shanghai’s Jing’an district. It is applying for regulatory approval to open two sub-branches in the city’s Jiading district and the newly-established free trade zone.
Regulators relaxed rules last year for mainland banks to take stakes in Taiwanese financial institutions. In April last year, Industrial and Commercial Bank of China Ltd. (01398.HK, 601398.CN) said it will buy 20 percent of Bank SinoPac Co. Ltd., marking the first investment by a mainland lender in a Taiwanese counterpart.
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