VZCZCXRO6722
RR RUEHGH
DE RUEHIN #0200 0440935
ZNR UUUUU ZZH
R 130935Z FEB 08
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 8115
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCPDOC/USDOC WASHDC
RUEHBK/AMEMBASSY BANGKOK 4071
RUEHBJ/AMEMBASSY BEIJING 7833
RUEHUL/AMEMBASSY SEOUL 9327
RUEHGP/AMEMBASSY SINGAPORE 7229
RUEHKO/AMEMBASSY TOKYO 9583
RUEHML/AMEMBASSY MANILA 0360
RUEHJA/AMEMBASSY JAKARTA 4266
RUEHKL/AMEMBASSY KUALA LUMPUR 3941
RUEHHI/AMEMBASSY HANOI 3523
RUEHBY/AMEMBASSY CANBERRA 4800
RUEHWL/AMEMBASSY WELLINGTON 2066
RUEHHK/AMCONSUL HONG KONG 9096
RUEHGH/AMCONSUL SHANGHAI 1755
RUEHGZ/AMCONSUL GUANGZHOU 0939

UNCLAS TAIPEI 000200 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PLEASE PASS USTR 
STATE FOR EAP/RSP/TC, EAP/EP 
USTR FOR STRATFORD AND BEHAR 
USDOC FOR 3132/USFCS/OIO/EAP/WZARIT 
TREASURY FOR OASIA/TTYANG AND HAARSAGER 
TREASURY ALSO PASS TO FEDERAL RESERVE/BOARD OF 
GOVERNORS, SAN FRANCISCO FRB/TERESA CURRAN, AND NEW YORK FRB MARI 
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 
------- 
¶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