Taiwan has lifted a long-standing ban on Chinese investment in its stock and futures exchanges, a move aimed at helping transform the island’s market into a regional financial services centre.
The new policy is the latest step by Taiwan’s new government to deregulate financial ties with China.
Although the People’s Republic of China has never ruled Taiwan, it claims
sovereignty over the self-governed, democratic island. Taiwan’s past governments have reacted to this threat by trying to limit the island’s economic dependence on the mainland.
But Ma Ying-jeou, the new president who took office in May, takes the view that by opening itself to China economically, Taiwan can play a vital role as a regional centre of asset management, fund-raising and research and development.
In June, the new government relaxed limits on the amounts Taiwanese funds can invest in Chinese stocks. Taipei also abolished rules that banned foreign mutual funds backed by Chinese capital investing in the Taiwanese market.
The cabinet said on Thursday it would allow so-called qualified domestic institutional investors (QDIIs) – Chinese institutions which have approval from Beijing to invest overseas on behalf of their customers – to buy Taiwanese stocks and futures.
While the deregulation takes effect immediately, capital inflows are expected to be limited in the near term.
“In the longer term, it will be natural for Chinese investors to want to have investments in Taiwan,” said Peter Sutton, head of research at CLSA in Taipei. “But in the short term, global sentiment will limit the immediate money flow into Taiwan. Also, there is a problem on the other side: China would have to actually clear QDIIs to invest meaningful amounts of money abroad. They haven’t done that in Hong Kong, so why should they in Taiwan?”
China allows its QDIIs to invest up to 3 per cent of their net worth in countries or areas with which it does not have a memorandum of understanding on such investments.
“That means about $1.13bn can come in now,” said Wu Tang-chieh, deputy chairman of the Financial Supervisory Commission, Taiwan’s market regulator. He said Taipei would aim to sign an MOU with China later this year.
Taiwan’s government also lifted a cap on Chinese ownership in foreign companies that seek secondary listings in Taipei.
The cabinet also plans to allow initial public offerings of foreign companies with Chinese capital, but this policy would still need internal consultation, according to the Taiwanese market regulator. Companies registered in China will remain banned from listings in Taiwan.
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