Taipei angles for offshore RMB financial centre status

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By:
Kanika Saigal
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Taipei is trying to establish itself as an offshore renminbi financial centre, to rival Hong Kong and Singapore. Analysts say there are some merits in this strategy, but the process has been very slow

A boom in tourism, improved cross-strait relations, cultural ties with China and developing transport routes with the mainland has helped Taipei to angle itself as a potential regional offshore RMB financial centre.

While some analysts are sceptical as to whether Taipei is able to take on Hong Kong and Singapore – the heavyweights established as the main gateways to the mainland – many other market participants have waxed lyrical to Euromoney about how Taiwan has an opportunity to strengthen its position as a regional offshore renminbi financial centre.

Taiwan is the only major trading partner with China that runs a large trading surplus,” says Victor Kung, president of Fubon Financial Holding in Taiwan. “If these trade flows were settled in RMB, this natural flow of RMB would fall into the hands of the Taiwanese, making it an obvious choice for an offshore RMB centre. Taiwan should become another offshore RMB centre.”

The Economic Cooperation Framework Agreement (ECFA), a preferential trade agreement between Taiwan and China signed in 2010, is paving the way for better cross-strait relations between the traditional antagonists, say analysts. Last May, the continued improvement of Taiwan's relationship with China boosted the island state's Euromoney Country Risk score. The agreement aims to boost bilateral trade and grant Taiwan accelerated access to the Chinese market, especially in the banking sector.

ECFA really elevated Taiwan’s political and economic status,” says CY Huang, chairman of the mergers and acquisitions and private equity council in Taiwan, and the president of FCC Partners, a boutique investment firm in Taipei. “ECFA has also paved the way for Taiwan to regulate relationships with other countries. Before, countries were slightly worried about the reaction by China. Now they are slightly more at ease about doing business with Taiwan.

“To a certain extent, Taiwan has the upper hand over Hong Kong as a gateway to the mainland. We speak the same language as they do on the mainland, we have a similar accent to them and we have a shared history. And obviously, unlike Hong Kong and Singapore, people in Taiwan actually feel more Chinese, which attracts Chinese business to Taiwan and vice versa.”

The flood of tourism from mainland China to Taiwan is also said to be a good indicator of stronger country ties. When cross-strait discussions began in 2008, Taiwan allowed mainlanders to travel directly to Taipei from Beijing, Shanghai and Shenzhen.

In 2011, Chinese tourists to Taiwan reached 1.79 million, according to the Tourism Bureau in Taiwan.

And since the re-election of President Ma Ying-jeou, the China-friendly Kuomintang leader, mainlanders will continue to flock to Taiwan, raising its potential as a gateway to the mainland and an offshore RMB centre. In fact, February saw eight more Chinese cities added to the list of direct travel between the mainland and Taiwan.

However, some analysts do emphasise that while there are a number of merits and strong performance indicators surrounding stronger trade and economic relations between Taiwan and mainland China, the potential to become an offshore RMB centre does not translate into Taiwan becoming a regional finance centre. Competition from Hong Kong and Singapore will remain fierce, and although cross-strait relations are moving forward, they remain protracted.

“The discussion of cross-strait opportunities for the financial services sector began in 2008, and since then it has been a pretty slow process,” says Chung Hsu, head of Taiwan financial sector research and Taiwan market strategist at Credit Suisse in Taipei.

Brad Ti, a Taiwan financial analyst at Citi in Hong Kong, adds: “If Taiwan were aiming to be a finance centre in the region, it would be competing with places like Hong Kong and Singapore. Given that Hong Kong is well ahead, it would be difficult for Taiwan to catch up from an investment perspective. Having said that, Taiwan does a lot of business with China on the manufacturing side. So from a trade or manufacturing perspective, this could be an area that Taiwan focuses on.”

Experts also point out that Taiwan’s manufacturing and technology sectors could give the country the edge.

“People argue that the main gateway to China is Hong Kong, but Hong Kong is just a finance centre,” says Huang. “People don’t consider Hong Kong to be a centre of technology, or manufacturing, or services on a par with Taiwan. This is where Taiwan’s potential lies.”