VZCZCXRO3528
RR RUEHCN RUEHGH
DE RUEHGH #0237/01 1470748
ZNR UUUUU ZZH
R 270748Z MAY 09
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 7980
INFO RUEHBJ/AMEMBASSY BEIJING 2820
RUEHCN/AMCONSUL CHENGDU 2008
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHGZ/AMCONSUL GUANGZHOU 0465
RUEHHK/AMCONSUL HONG KONG 2177
RUEHML/AMEMBASSY MANILA 0073
RUEHUL/AMEMBASSY SEOUL 0453
RUEHGH/AMCONSUL SHANGHAI 8627
RUEHSH/AMCONSUL SHENYANG 1999
RUEHGP/AMEMBASSY SINGAPORE 0266
RUEHIN/AIT TAIPEI 1795
RUEHKO/AMEMBASSY TOKYO 0659

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 
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