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Viewing cable 09TAIPEI577, TAIWAN STOCK EXCHANGE OFFICIALS DOWNPLAY IMPACT OF

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Reference ID Created Released Classification Origin
09TAIPEI577 2009-05-13 08:54 2011-08-23 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY American Institute Taiwan, Taipei
VZCZCXRO2985
OO RUEHCN RUEHGH RUEHVC
DE RUEHIN #0577/01 1330854
ZNR UUUUU ZZH
O 130854Z MAY 09
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1567
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHWL/AMEMBASSY WELLINGTON 2467
RUEHCHI/AMCONSUL CHIANG MAI 0725
RUEHHM/AMCONSUL HO CHI MINH CITY 0588
RUEHJA/AMCONSUL SURABAYA 0119
RUEAIIA/CIA WASHINGTON DC
RHHJJAA/JICPAC HONOLULU HI
RHHMUNA/USPACOM HONOLULU HI
RUEKJCS/SECDEF WASHINGTON DC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
UNCLAS SECTION 01 OF 02 TAIPEI 000577 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/TC 
 
E.O. 12958: N/A 
TAGS: CH ECON EFIN ETRD PGOV PREL TW
SUBJECT: TAIWAN STOCK EXCHANGE OFFICIALS DOWNPLAY IMPACT OF 
CHINESE PORTFOLIO INVESTMENT 
 
TAIPEI 00000577  001.2 OF 002 
 
 
Summary 
------- 
1.  (SBU)  Taiwan opened its securities markets to Chinese 
institutional investors in early May, but the Taiwan Stock 
Exchange (TSE) is not expecting a large influx of portfolio 
investment from China anytime soon.  Senior TSE executives 
tell AIT that the biggest impact of loosening Taiwan 
restrictions on investment from China is a boost to local and 
foreign investor sentiment.  Over the next few years, the 
TSE,s growth strategy focuses on launching a number of 
exchange traded funds (ETFs) to attract local investors who 
wish to play overseas markets and employ more complex 
investment strategies.  End Summary. 
 
Taiwan to Allow Portfolio Investment from China 
--------------------------------------------- -- 
2.  (U)  Taiwan,s stock market is up 40% so far this year 
and has risen more than 13% since the conclusion of the most 
recent cross-Strait talks on April 26.  One heralded outcome 
of these talks was the announcement by Taiwan that it would, 
for the first time, permit direct and portfolio investment by 
Chinese investors in Taiwan.  Shortly after the talks, 
Taiwan,s Securities and Futures Bureau published new rules 
that allow some Chinese investors to invest in Taiwan 
securities. 
 
3.  (U)  The regulations remove a blanket prohibition on 
Chinese investors in Taiwan securities markets, but even 
under the new rules, Chinese portfolio investment activity is 
strictly limited.  Only four categories of Chinese investors 
are allowed: 
 
--Chinese qualified domestic institutional investors (QDIIs), 
--Chinese employees of a Taiwan firm (and they are only 
allowed to hold stock in their employer firm granted to them 
by their employer), 
--Chinese holding equity in foreign firms listed in Taiwan, 
and 
--any others designated by the SFB (none designated yet). 
 
4.  (U)  Taiwan still does not allow individual Chinese 
investors, except for the limited exceptions above, to 
participate in Taiwan markets.  The QDIIs also still face 
significant restrictions on their Taiwan portfolio 
investment. The new regulations limit the amount of funds 
invested in Taiwan to 3% of their total assets.  This limit 
will be raised to 10% after China and Taiwan sign an MOU on 
financial sector regulation and supervision.  China has yet 
to approve QDIIs investing in Taiwan, also pending signature 
of an MOU. 
 
5.  (U)  Taiwan,s regulations were crafted to guarantee that 
Chinese investors do not gain control of the entities in 
which they are investing.  Chinese investors in aggregate are 
limited to a 10% stake in any listed company, unless approval 
is granted by Taiwan,s Investment Commission.  Rules also 
state that Chinese investors will not be permitted to gain 
"control" or "management" authority over any listed company. 
A Chinese investor is not permitted to be elected to the 
board of directors.  Although Taiwan will allow Chinese 
investors to buy and sell equity shares, global depository 
receipts, mutual funds, government and corporate bonds, 
warrants and other securities, they are not permitted to 
engage in margin trading, short sales, lending or providing 
loan guarantees. 
 
TSE Not Counting on Chinese Investors 
------------------------------------- 
6.  (SBU)  Two senior executives at the TSE told AIT they did 
not believe Taiwan equity markets would see an influx of 
Chinese investment anytime soon.  They pointed out that 
individual investors are still barred from investing  in the 
markets here and noted the restrictions on QDII investments. 
They also argued that PRC regulators were more cautious than 
their Taiwan counterparts and would likely prevent Chinese 
investors from putting "too much money" into the Taiwan 
market.  The real impact of Taiwan,s opening to Chinese 
 
TAIPEI 00000577  002.2 OF 002 
 
 
investment, they said, would be the improvement of overall 
sentiment which should help generate interest by local and 
other foreign investors in the Taiwan market. 
 
7.  (SBU)  With this analysis, the TSE was not focusing on 
attracting Chinese investors, but instead on trying to 
attract more Taiwan and foreign (non-Mainland) money by 
trying to list a broad range of exchange traded funds (ETFs) 
on the TSE.  Over the next few months the TSE will seek 
regulator approval and agreements with a number of foreign 
exchanges to list ETFs representing a variety of foreign 
stock indexes, including indexes in China and Hong Kong. 
They also hope to offer ETF derivative products which would 
allow local investors to place long and short bets on the 
market or a particular sector or basket of stocks.  The TSE 
currently lists 11 ETFs and hopes to have a total of 30 ETFs 
trading by the end of the year and as many as 100 within 
three years.  The executives note that unlike Hong Kong and 
some other exchanges in the region, most trading in Taiwan is 
driven by local retail investors, and ETFs are most suited to 
individual investors. 
 
8.  (SBU)  Comment:  Although these restrictions on Chinese 
investors currently in place will likely be further loosened 
over time, our TSE contacts still do not believe that 
material amounts of portfolio investment from China will 
enter Taiwan anytime soon.  Their attitude reminds us that 
the hype may be ahead of the reality on the ground.  End 
Comment 
YOUNG