2020.09 The Taiwan Banker NO.129 / By Hank Huang (黃崇哲)
A Fresh Start for Taiwan's Financial SectorEditor's Note
At the 2020 Taiwan Capital Markets Forum, President Tsai Ying-wen said that the government will turn Taiwan into an “capital center to serve companies throughout Asia” and “Asian high-end asset management center,” injecting new vitality into the market by attracting international institutions and capital. Yet Taiwan has been talking about becoming a regional financial center for three decades. Will this time be different? How can we optimize our financial sector to capitalize on the unprecedented opportunities arising from the shift of supply chains away from China? We also need to take into consideration how the pandemic is affecting global finance. Taiwanese capital is fast reshoring from China and its special administrative region of Hong Kong. On the one hand, Taiwanese businesses are responding to the shift of global supply chains away from China amid the U.S.-China trade war. At the same time, Taiwanese investors are concerned about Hong Kong's business and political environment. Some are taking their money out of the city and bringing it home. Further, Taiwan's success in corralling the coronavirus as well as its impressive achievements in the semiconductor industry are attracting the attention of global investors, creating further opportunities for the finance industry. More importantly, as Financial Supervisory Commission Chairman Thomas Huang noted, the sound accountability and transparency mechanisms of Taiwan’s democracy protect trust in the financial markets – a key advantage for financial growth. Despite its strengths, when compared to financial centers like Hong Kong or Singapore, Taiwan still has great room for regulatory improvement in terms of acquisitions, innovation, and consumer and investor protection. Therefore, future developments in direct financing, which has always lagged behind indirect finance, may be a good indicator for Taiwan’s future financial policies. Direct finance includes instruments like stocks and bonds, rather than the life insurance policies that are popular with Taiwanese retirees. As low spreads are anticipated for the foreseeable future, highly profitable direct financing can support the sustainability of the Taiwanese financial industry. At the same time, growth in direct financing will be required to provide long-term returns for repatriated or foreign funds in Taiwan. This is why the FSC has been opening up capital market policies, and working to review fundraising and exchange mechanisms. In particular, although we all know that “investments are not guaranteed” and “may lose the principal,” the lack of widespread public awareness in Taiwan of risk and reward may be the greatest challenge for both the government and service providers in promoting direct finance. Taiwan already has many types of third-party investment protection institutions and relief channels. When consumer disputes occur, too many public opinion leaders or government representatives intervene personally, which reduces confidence in the impartiality of these third parties, and decreases trust in the system. Clearer system design and better regulations are needed to dispel suspicions of back-room dealings and ensure that Taiwan can take advantage of this rare opportunity. A healthy and dynamic capital market is the cornerstone of economic development. If Taiwan becomes a top financing center for all of Asia, when Taiwanese companies start to expand their production bases in India and Vietnam due to movement out of China, its investment, financing, and wealth management functions will provide strong backing for these overseas production bases. I look forward to financial growth following Taiwan’s economic success.