In overseas investment, as in fight-ing a war, having sufficient "ammunition" is vital. One of the most admired aspects of Japan's internationalization is the way in which its banks have served as trail-blazers.

The nearly 3000 Chinese involved in transshipping trade in Paraguay's "Orient City" are Chinatrust customers. （photo by Vincent Chang）

In Central and South America, there are already two Taiwanese banks opening up the front lines.

In Panama's Colon Free Zone (CFZ), the employees from the trading companies from all over the world that are located there don't rush to get to the bank before 3:30 pm as in Taiwan, but instead must be there before 1:00 pm. Only International Commercial Bank of China's (ICBC) customers can follow Taiwan custom, receiving all the financial services they require until 3:30 pm.

"ICBC's service is the best," says the wife of Chiang Hsien-chen, head of the Taiwan Chamber of Commerce in Panama, who operates an import-export car parts business in the CFZ, with a smile. This is especially true as the Chinese community there is small and everyone knows everyone else. Business people often just drop off a sack of money for deposit before they finish work.

In Taiwan, where banks' operations (and profits) are secure, most banks don't provide such service. Currently, ICBC and Chinatrust are the two local banks moving most quickly to internationalize.

ICBC, for example, already has 27 overseas branches in North and Central America, Southeast Asia, Europe, the Middle East, and Australia.

Following policy and getting results

Fifteen years ago, in accordance with the ROC government's policy of developing trade with Central and South America, the then 40%-government-held ICBC established a branch in the CFZ.

The bank's business hours were longer than those of their competitors-in the CFZ, most banks are open from 8:00 a.m. to 1:00 p.m. Although ICBC has the shortest history of the banks in the CFZ, its addition of afternoon hours from 2:00 to 3:30 p.m. has made it the biggest bank there since the collapse of the Arab bank BCCI.

The CFZ branch currently has 28 employees, deposits of US$40 million, and monthly profits of several hundred thousand US dollars. Business people from Taiwan account for only 10% of the bank's customers. The other 90% are made up of Indian and Arab business people.

This year, the Fort Davis Export Processing Zone is being vigorously promoted and the ROC government hopes that ICBC will help out by establishing a branch there. The bank, however, feels that there are an insufficient number of businesses to support a branch in Fort Davis, and has decided instead to establish its third Panamanian branch in the city of Colon. (The bank's second Panamanian branch is in the capital, Panama City.) And Colon is only about a ten-minute drive from Fort Davis.

"There are a lot of overseas Chinese with small businesses in Colon. And with the Taiwanese business people in Fort Davis, our customer base will grow. If, at some time in the future, Fort Davis grows to have 50 manufacturers, we will certainly open a branch there," says Yang Chung-hsin, general manager of ICBC's downtown Colon branch.

He goes on to say that the types of business handled by the Colon and CFZ branches are not the same. The Zone is primarily made up of trading companies and wholesalers. As soon as goods come in, the companies want to sell them and the bank need only do things like import-export bills and currency exchange. The business is simpler. At the Colon branch, on the other hand, the bank must often provide services to support the Fort Davis manufacturers as they import raw materials, process goods, and manufacture. The turnaround period is therefore longer. The Colon branch also has more individual customers and so also provides consumer loans and mortgages.

Tying foreign relations and trade

For Taiwan's business people, the establishment of overseas branches by domestic banks doesn't just give them a warm feeling, but also has an actual effect on their business operations.

"It's like when we went into Indonesia. We went there because there were already tens of thousands of Taiwanese businesses there, all clamoring for us to go. A Taiwanese bank going there already knows these businesses inside and out. Based on their credit in Taiwan, we can immediately provide financial services to them. The local banks there have to spend two to three years investigating them," says Ku Lien-sung, CEO of Chinatrust.

Huang Wen-hsiung, general manager of the Colon Free Zone branch of the ICBC, says that where there are Taiwanese business people, there is more business. The banks and the business people work together. It's a mutually benefitial relationship.

Compared with ICBC, which began its internationalization as early as the 1930s, the publicly held Chinatrust is just a newcomer, albeit an outstanding one. In domestic governmental and business circles, CEO Ku is known as the "Ambassador of Trade." He himself says that his goal for Chinatrust is to make it "a global bank for Chinese people."

In order to achieve this goal, Chinatrust has picked up the pace of its internationalization. It now has three branches, two subsidiaries, and six offices overseas in locations including Hong Kong, New Delhi, Paraguay, the Philippines, Indonesia, London, Manila, Bangkok, Hanoi, and Tokyo.

"Many people wonder why I set up a branch in Paraguay. Nobody thinks it will make money in 10 or even 20 years," says Ku. He says he can't deny that establishing a branch there was to support the government's trade and economic policy, to cement relations with the only country in South America with which Taiwan has formal relations.

Fresh flowers are no match for a tree

In 1994 and 1995, Paraguay experienced a financial meltdown. "Everybody lost confidence in the Paraguayan financial system and some big American banks pulled out," says Chu Yao-tien, manager of Chinatrust's Asuncion branch, remembering that time. But Chinatrust continued with their investment, expressing their confidence in Paraguay, which had the effect of a public statement. Moreover, Chinatrust brought in other international money which helped to stabilize the financial system.

For this reason, the Paraguayan government has given incomparable attention to Chinatrust's investment plans. When Chinatrust's Paraguayan branch opened for business in August of last year, Paraguayan President Juan Carlos Wasmosy, in spite of being ill, planted a tree in front of the bank's doors with Ku.

"We help those countries with which we have relations. What we give is not a pot full of pretty flowers which will not last, but a tree which will continue to grow for many years to come," says Ku.

Although the bank went to Paraguay in support of the ROC's foreign policy, the investment did receive a thorough business evaluation.

First, Paraguay is located in South America's geographic center. It is also a member of Mercosur, a South American trade group. The Paraguayan government, in order to encourage foreign investment, gives foreign investments tax-free status for five years. Further, Paraguay's financial system is liberalized, foreign exchange is not controlled and there are no special restrictions on foreign banks.

Ku says that at that time Chinatrust was considering going into the larger, more populous Brazilian market. Brazil, however, is less receptive to foreign banks and setting up there is not easy. But after setting up the Paraguayan branch, sometime in the future Chinatrust can use that branch to establish a subsidiary in Brazil.

In addition to the excellence of its location, there are a number of Taiwanese business people in Paraguay. Especially in the place known as "Orient City" on the Paraguayan-Brazilian border, there are a great many immigrants from Taiwan engaged in transshipment trading. Because Brazil's import taxes are extremely high, many Brazilian gray market smugglers cross the bridge from Brazil into the city to buy goods that they will then carry back into Brazil. This has attracted more than 3000 Chinese to "Orient City" where they operate small and large stores.

Establishing a beachhead

Doing business and making money creates a demand for places to deposit money. And, in "Orient City," the interest rates on loans from local banks exceed 10%. For these reasons, "If you can just control risk, keeping down the bad-loan ratio, your profit outlook should be good," says Ku.

At the outset, Chinatrust's operating strategy was to focus on savings, foreign exchange, import-export accreditation and OBU tasks. The bank has been extremely careful about involving itself in making loans. Instead, it has been using the deposits it has absorbed to buy government bonds or invest internationally, and thus get higher profits.

Ku originally didn't have high hopes for profits from the Paraguayan branch and had even said that he didn't dare think that the bank might break even in three years. Instead, the bank's performance has outstripped all expectations.

"We established the branch in August of last year, and now, this May, we are already seeing profits," says Chu. Chinatrust is already one of Paraguay's five largest international banks along with ING, Lloyd's, ABN ADMRO, and Citibank.

In looking at the future, Chu is still very cautious. He says that after Brazil joins Mercosur and begins to lower its customs duties, Paraguay's transshipment trade will be seriously affected.

"'Orient City' has already seen between 300 and 500 businesses close, and between 5000 and 9000 people have lost their jobs. If there is no strategy on how to replace these industries soon, Paraguay's economy will be strongly affected," says Chu.

But on the whole, he still feels that the investment in a Paraguayan branch was worth it. "By setting up a bank here, we can be close to and understand the other markets in Central and South America. And its helpful for developing the talents of our people, whether it be in the area of language, understanding of local laws and tax codes, or just becoming familiar with banking procedures."

With the positive international view of the Central and South American markets and the trend towards increasing activity by Taiwanese people in those markets, ICBC's branches are already spreading through Panama. Can Chinatrust move out from this beachhead, strengthening its forces and enlarging the battlefield? It no longer seems an unattainable goal.

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(above, right) ICBC is the largest bank in Panama's Colon Free Zone. Among its customers there are not only Taiwanese, but also large numbers of Indians and Arabs. (photo by Diago Chiu)

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(facing page, above) When Chinatrust opened its branch in Asuncion, Paraguay, Paraguayan President Juan Carlos Wasmosy and Chinatrust CEO Ku Lien-sung hosted the ribbon cutting themselves. ROC Foreign Minister John Chang also attended the ceremonies. (photo courtesy of Chinatrust)

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The nearly 3000 Chinese involved in transshipping trade in Paraguay's "Orient City" are Chinatrust customers. (photo by Vincent Chang)

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After establishing a beachhead for itself in Paraguay, Chinatrust's next goal is to invade Latin America's largest market-Brazil. The picture shows Brazil's former capital, Sao Paolo. (photo by Vincent Chang)

After establishing a beachhead for itself in Paraguay, Chinatrust's next goal is to invade Latin America's largest market--Brazil. The picture shows Brazil's former capital, Sao Paolo. （photo by Vincent Chang）