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Taiwan directed to attract yuan-based investment

Publication Date : 26-02-2013

 

Attracting greater Chinese yuan-denominated investment and services is vital for Taiwan to develop its cross-strait financial centre, a local bank said recently.

Standard Chartered Bank (SCB) economist Tony Phoo said on Monday that the Taiwan government should consider revising current banking laws in order to loosen restriction over the movement of yuan in Taiwan.

Flexibility Needed

Phoo said that the government should take the Hong Kong experience as a reference point.

Hong Kong has the advantage of already having decades of experience in handling yuan investment and cash flow, as well as having sufficient yuan capital and assets in its local financial investment market.

The economist said that the Hong Kong government, compared to Taiwan, has flexible policies regulating the flow of yuan into its market. He said Hong Kong allows enterprises from the mainland to issue their bonds in Hong Kong. In Taiwan, however, only local enterprises are allowed to apply for yuan-denominated bonds.

The Hong Kong government does not require a strict evaluation of yuan-based bonds, but the Taiwan government does.

Phoo forecast that the lack of certainty and strict restrictions in Taiwan's policies may hold back the development of yuan investment.

The economist also said it is crucial to build a system that allows yuan in Taiwan to flow back to the mainland.

Chinese government finance officials have started considering developing a system to attract yuan currently outside of the country and bring it back to China.

Taiwan's yuan cash flow may soon reach a sufficient amount for the country to be considered a major yuan financial centre, Phoo said. He said Taiwan has more advantages compared to other countries when it comes to allowing yuan-based financial services. Phoo said that the government's policy on keeping yuan investment in the nation will determine the future of the cross-strait investment market.

Chinatrust Financial Holding Co. have begun offering yuan-based bonds in Taiwan, the company announced yesterday. The bank said that currently the offer is only available for institutional investors. Each purchase can be up to 1 billion yuan (US$158.9 million) and the three-year fixed-term interest rate will be 2.9 per cent

Since the government opened the yuan market, yuan-based financial products have grown in popularity among investors, particularly in services such as deposits, saving accounts and transactions, Chinatrust said.

*US$1=6.29 yuan

 

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