Even though the starting gun has not yet fired, numerous banks have been making fast tracks to the mainland to get a handle on the market over there.
"As trading through third parties and indirect investment grows, there is everywhere a need for banks," said Wang Chien-shien, the minister of Finance, at a gathering of bankers. Foreign banks have carved up the large pie of indirect remittances. "This is Chinese money. Why don't we let Chinese themselves handle the business?"
But the Hua Nan Bank, which had already set up a branch in Hongkong, has farther-ranging considerations.
"We have numerous customers that go to invest in Southeast Asia, including the mainland, and they all use Hongkong as a springboard. If we can't meet their needs, our clients will begin to make arrangements with other banks. It will get to the point where we'll even be losing business for domestic services," states Chen Yu-chi, the general manager of Hua Nan's International Administration Department. What's more, Hongkong is an international financial center. In conjunction with branches in Los Angeles and Frankfurt, by setting up a branch in Hongkong, you've got a global network that can handle remittances without time-difference problems.
Everything is difficult abroad: For a Taiwanese business, a branch of a familiar bank-- whether in Hongkong or on the mainland--is convenient in many ways.
"The Chinese communist banks give most of their money to state-run enterprises. It's next to impossible for a foreign company without a credit record to take out a loan there," points out Chen Chin-long of the Chuang-hua Institute of Economic Research. "The service offered by the mainland banks, moreover, is very backward. They take a long time to remit money, and if you want to convert a lot of renminbi, you've got to notify them well in advance. It's really inconvenient."
What about Hongkong banks? They're strangers to most Taiwanese businesses, who rarely come into contact with them. And it's no easy matter to borrow from them either. Reportedly, most Taiwanese businesses go about taking out a loan for their mainland operations through the following method: They go to a bank in Taiwan with collateral (such as real estate), then that Taiwanese bank makes a guarantee to a Hongkong bank, which in turn makes the loan to the Taiwanese business on the mainland.
Though you eventually will be able to borrow money, the process causes delays so that money isn't received until after it is needed.
"Many small Taiwan businesses just go ahead and carry the cash with them. But larger operations of are still going to want the assistance of the banking system," holds K.A. Chang, the chairman of Holmgreen Holdings. With the perspective of a Taiwanese business that has set up shop on the mainland, he hopes that Taiwanese banks will go to the mainland to set up branches.
Up until now, the communist authorities have permitted 47 foreign banks to handle only remittances of money on the mainland but have not allowed banks to offer loans or saving accounts in mainland currency. This is to say that foreign banks are not allowed to attract capital on the mainland. If they want to do business, they've got to bring their own money.
An outflow of more capital? With such regulations, what if our banks did go over--with vaults full of cash. Wouldn't this only accelerate the ever-quickening outflow of capital from Taiwan?
"Maybe there is too much concern about that," unexpectedly says Kao Koong-lian, the vice chairman of the Mainland Affairs Council of the Executive Yuan. He explains that perhaps with bank support sufficient to make financing convenient for Taiwan businesses, not as much money would be brought over with the "you'll-never-know-when-you'll-need-it" attitude. "In fact, in the past, Taiwan businesses would move capital between themselves according to need, forming relationships much like cooperative financial associations."
If this is the case, why were banks not included in the first wave of liberalization of the regulations governing indirect investment in the mainland?
"In principle we're not opposed, but there are still many technical problems that need to be overcome," says Kao Koong-lian. According to the regulations, banks cannot directly contact a mainland bank unless the authorities at the Ministry of Finance agree. Currently, the Ministry of Finance is still planning possible permissible methods. "Perhaps different kinds of business services will be delineated. Clearing of checks may be permitted, for example, whereas banks may not be allowed to make loans to mainland enterprises." Kao explains that making these distinctions requires a lot of time, but that opening things up without any regulations would cause even greater problems.
Keeping their cool: Even if the government is not opposed, before government policy is changed, not every bank is jumping up and down in excitement. Some people have kept their cool. "If we want to go abroad to establish branch banks, there are four problems that we will first want to consider," says Cheng Shih-ching, the president of Cosmos Bank. First, are the business activities over there sufficient to support a branch bank? Second, if one doesn't establish a branch over there and instead cooperates with another bank, would there be fears that financial secrets (especially the amounts of different currencies in a bank's reserve) might be leaked? Third, if a client developed its business over there and its bank didn't, could the bank lose the client's Taiwan business? And fourth, what is government policy?
"As I see it, the market for Taiwan businesses in the mainland is spread out, so one can't be very optimistic on the first point," says Cheng Shih-ching. Added to this problem are the lack of an international financial center on the mainland and a lack of direct channels for communications between the two sides. If there was a dispute, and the other side refused to acknowledge an agreement or froze your capital, it could be a lot of trouble." Cheng holds that a lot of the bank owners investigating the situation in the mainland are going over "just to get a feel for things."
Still a long way: Edward Chen, the head of the international finance section of the Bankers Association of the R.O.C. and Executive Vice President of the Hua Nan Bank, holds that banks are a public instrument. With so many people giving money to banks to put to use, bankers must be stable and cautious. "We should be following government policy, not always testing its limits." As for his fellow bankers who have come back from the mainland to tell the media of "the great Chinese communist welcome," the mild-mannered and softspoken Chien is uncharacteristically blunt: "With bankers so frivolous, how can clients rest assured?"
In business, there are always risks. Banking is no exception. Yet in assessing the pluses and the minuses, there is a long stretch of road to walk before Taiwanese banks set up branches on the mainland.
[Picture Caption]
The banks have embraced the mainland markets. Will everything come up roses? (drawing by Tsai Chih-pen)
