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Is there momentum and substance behind Cross-Straits Financial Cooperation Negotiations?: Delays raised questions

Wednesday, August 18th, 2010

By Matthew C.J. Rudolph and Siddharth Gupta

[Unpublished from earlier this year, the considerations raised here persist in light of this weeks news that Taiwanese legislators are restive over the Economic Cooperation Framework Agreement (ECFA)]

Storms – meteorological and political – may have delayed progress on negotiations to increase financial integration between Mainland China and Taiwan, but with the Agreement now public law on the island it is unclear how the financial elements of the Agreement will play out

In June 2009, a delegation of lawmakers from Taiwan was due to visit the mainland in a bid to finalize the details of Memorandum of Understandings (MOUs) on cross-straits business in the banking, insurance and securities sectors. This was seen as a progression of the agreements signed on April 26 which allowed approved mainland entities to invest in Taiwan after a 20 year hiatus, making the flow of investment a two-way street. (Previously, only investors from Taiwan were allowed to invest in the mainland. A law forbids large-scale investment into Taiwan and transactions in Taiwan cannot be settled in yuan, or vice-versa.)

Completion of the MOU is necessary before institutional investors from China can invest in Taiwan.

China Mobile announced in April it had reached an agreement to buy a 12 percent stake in Far EasTone. China Mobile said it had invested NTD 17.77 billion, about CNY 3.6 billion to purchase 444 million shares of Far Eastone at the price of NTD40 per share through its wholly-owned subsidiary and these shares would account for 12% of the total stake of Far Eastone Telecommunications. This deal announcement suggested to observers that there was perhaps real momentum behind the cross-straits financial MOUs last stage of negotiations to be finalized by the Taiwanese delegation due to visit the mainland in early July.

The delegation was to visit the China Banking Regulatory Commission, China Insurance Regulatory Commission, China Securities Regulatory Commission, and major Chinese government-run and private banks to better understand the operations of financial institutions of Mainland China. In addition, the delegation was to visit the Shanghai Securities Exchange to learn more about its operations.

The delegation returned on July 5, 2009 and as of September 1, there was no further movement on the issue. It seems that the MoU has been stalled despite statements from Chiang Hsiu-Lian, Chairwoman of Taiwan Financial Holding Corporation that both sides would like to see the MoU signed quickly and would not want it to be postponed to 2010. Reasons for this delay are unclear.

When the delegation returned, Kuomintang (KMT) legislator and MoU delegation leader Lai Shyh-Bao said that the trip was fruitful, emphasizing that the focus of the MoU discussions had been on market entrance. Signing would proceed as soon as the market entrance issue was resolved.

Confusion as conflicting reports fill the sky

There were reports about Dalai Lama’s visit to Taiwan causing some consternation amongst the Chinese policy-makers which was cited as the reason for the stalling. However, in a new turn of events, on 17 September 2009, Mainland Affairs Council Chairwoman Lai Shin-Yuan said that the Cross-Straits Financial MoU talks were near completion and that the two sides had made significant progress in the past few months, making it likely that it will be signed soon.

The two sides for the talks are headed by the Taipei-based Straits Exchange Foundation (SEF) Chairman Chiang Pin-Kung and China-based Association for Relations Across the Taiwan Straits President Chen Yunlin. The SEF and ARATS are semi-official intermediary bodies set up by Taiwan and China, respectively, to deal with cross-strait affairs and negotiations in the absence of official ties between the two sides.

Banking, insurance, securities issues missing from agenda.

On Wednesday, Mainland Affairs Council (MAC) reported that the fourth round of Chiang-Chen talks will be held in December in the central city of Taichung. The two officials are expected to sign four agreements regarding fishing labor cooperation, agricultural quarantine inspection standards, inspection and certification for industrial products, and the avoidance of double taxation.

While the original MoU was to focus on the banking, insurance and securities sectors, there seems to be very little mention about any issues regarding the securities or banking sectors.