With regard to the “Regulations of the People’s Republic of China on Administration of Foreign-funded Banks” promulgated by the Chinese authorities and in response to recent groundless criticisms made against the MAC and other government agencies by the media and specific persons concerning the draft amendment to Article 36 of the “Act Governing Relations between Peoples of the Taiwan Area and the Mainland Area,” the Mainland Affairs Council (MAC) issues the following statement:
1. The government has the unshirkable responsibility to effectively manage cross-strait financial risk.
Whether from the perspective of international financial rules or the specific circumstances of cross-strait relations, the government should effectively manage the establishment of branches in China by domestic financial institutions. It is the government’s unshirkable responsibility to implement the financial opening-up policy only under the precondition that effective risk management can be properly implemented. In consideration of this duty as well as the needs of the industry, the Taiwanese government has been promoting a cross-strait financial opening-up policy in a sequential and orderly manner. Based on risk assessment and control ability, the government has first implemented the opening-up policies in the relatively low risk areas, including allowing domestic banks to establish offices in China (from June 2001), allowing insurers to set up subsidiaries (August 2002) or to become shareholders of Chinese enterprises (April 2004), and allowing securities firms to establish branches or subsidiaries in China (February 2005). On the matter of allowing domestic banks to upgrade their China offices to branches, establish subsidiaries, and to hold shares in Chinese banks and other issues of concern to the industry, the government has considered that banks are the most important link in the country's credit system, that the demands and standards of risk control for banks are far higher than those for any other financial sector, and that the financial risks in China are far higher than in other areas due to the acute deficiency of business information transparency and the extreme unsoundness of accounting and financial reporting systems in China. The government therefore has a responsibility to establish a comprehensive and effective mechanism for supervising the China branches of domestic banks. This is aimed at ensuring that the financial risk engendered by such financial operations in China will not affect the stability of Taiwan's financial system. The government's position has been extremely clear. So long as risk management mechanisms can be properly established, a policy of allowing banks to establish branches in China will be successfully implemented as a matter of course.
2. Cross-strait negotiation on establishing a financial supervision and management system is the precondition for ensuring effective supervision of banks.
The key issue in implementing effective supervision of the China branches of Taiwan’s banks is that both sides should engage in negotiations to establish a system for financial supervision and management so that the financial supervisory agencies in Taiwan can exercise the right of jurisdiction to ensure effective supervision and management of such branch operations. However, due to various political considerations, the Chinese authorities have long avoided conducting negotiations with Taiwan’s responsible authorities on the establishment of such system. Although some Taiwanese industry operators and certain specific persons have privately exchanged views with the Chinese side about various negotiation proposals, the Chinese authorities have not yet announced their official position based on any of these proposals. Moreover, under the “Regulations of the People’s Republic of China on Administration of Foreign-funded Banks” announced by the Chinese authorities on November 15, 2006, all foreign banks, including banks in Taiwan, cannot establish branches or subsidiaries in China or become shareholders of Chinese banks until the financial supervisory authority in the home country or area of the foreign bank establishes a cooperative mechanism for financial supervision and management with the China Banking Regulatory Commission. The Chinese authorities have avoided negotiating with the Taiwanese government, yet they also require a precondition that both sides set up a mechanism for financial management and cooperation. This clearly is the main hindrance to allowing domestic banks to set up branches in China.
3. Fair competition must be ensured in allowing financial operators to establish branches in China.
Taiwan began allowing domestic insurance and security institutions to invest in China in August 2002 and February 2005, respectively. Since that time, the Taiwanese government has approved six insurers to establish subsidiaries or hold shares of Chinese enterprises. However, China has only approved one of these cases. Furthermore, to date China has not approved any of the investment cases involving Taiwanese securities institutions because the Chinese authorities require that the securities supervisory agencies across the Strait sign a memorandum of understanding (MOU). Such situation amply demonstrates that when the Chinese authorities deal with investment applications filed by Taiwanese companies, they have adopted selective measures according to political considerations. This will be detrimental to fair competition in the financial sector as well as to the healthy development of cross-strait financial interactions. Therefore, in conducting future cross-strait negotiations, both sides should put emphasis on an important issue. That is, they should ensure fairness in supervision and management affairs and fair competition in the financial industry through institutionalized interaction channels across the Taiwan Strait.
4. The government’s single-body system and its spirit cannot be distorted.
Some legislators in Taiwan have been promoting the draft amendment to Article 36 of the “Act Governing Relations between Peoples of the Taiwan Area and the Mainland Area” (thereafter referred to as “the Act”). They think that so long as the banking industry is removed from the applicability of the investment review provisions in Article 35 of the Act and the Financial Supervisory Commission (FSC) replaces the Ministry of Finance (MOF) as the responsible authority, the issue of allowing establishment of financial branches in China will be resolved. In fact, government policymaking is based on a single-body system, the banking industry is a specially permitted industry, and the FSC is already in charge of making assessments and specialized resolutions on policies related to the opening up of the banking industry. Article 35 of the Act stipulates that the Ministry of Economic Affairs (MOEA) shall serve as a single window for handling, reviewing and approving China-bound investment cases. This requirement is designed mainly to integrate different management mechanisms and provide greater convenience for investors. If legislators insist on revising the law, their proposed draft amendment will only destroy the design and spirit of the government's single-body system, while doing nothing beneficial for removing the barriers faced by the banking industry in establishing branches in China. On the contrary, it will give rise to numerous management issues and inconveniences for the industry operators. Furthermore, under the proposed Article 36, the regulations governing the establishment of overseas branches (excluding Hong Kong or Macao) by financial institutions shall apply mutatis mutandis to the stipulations governing the establishment of a branch in China. This entirely ignores the special situation of cross-strait relations and unforeseeable cross-strait financial risks. The society will make a fair judgment regarding whether the draft amendment to Article 36 is something that lacks prudent consideration.
5. Ruling and opposition parties should forge a consensus to unanimously demand that the Chinese authorities negotiate with Taiwan on establishing a financial supervision and management system.
In order to eliminate barriers to the establishment of branches in China by Taiwan’s banking sector, it is imperative that not only the government and the banking industry should cooperate hand in hand, but also the ruling and opposition parties should adopt an unanimous position to urge the Chinese authorities to remove political barriers and negotiate with the Taiwanese government on the establishment of a cooperative mechanism for financial supervision and management at the soonest possible time. Once both sides have achieved an agreement in this regard, they should complete various supervision and management mechanisms as soon as possible. This is the only way to truly eliminate roadblocks for Taiwan’s banking sector intending to establish branches in China, while also meeting the public's expectations of the government.