Taipei Wants to Be Big Player in Financial Arena

Taiwan, one of the world’s major industrial powers, has set its sights on a new goal--becoming a major Asian financial center.

The island has racked up huge trade surpluses in the past decade, and its industrial companies have become big foreign investors. But Taipei remains a financial backwater, stifled by regulations and the backwardness of its capital markets.

Government officials and local bankers now aim to establish Taiwan alongside Hong Kong and Singapore as a focus of global banking and a conduit for capital flows in the region.

“Look at our trading power, our economic strength, our technology,” Central Bank governor Samuel Shieh said in an interview. “Why should our banks have to go to Singapore or Hong Kong to do business?”

Making Taipei a financial center is a goal of the island’s 1991-96 development plan. Officials have proposed measures ranging from opening new markets to building a high-rise tower that would house big financial institutions.

Economists say Taiwan’s strong economy and foreign exchange reserves of $73 billion, believed to be the world’s largest, certainly give it the potential to win a share of the financial business done in Hong Kong and Singapore.

China’s resumption of sovereignty over Hong Kong in 1997 also could boost Taiwan. Officials have said Taipei may attract business lost to Hong Kong, if bankers’ worries about 1997 damage the territory’s status as a financial center.

But Taiwan has a long way to go before catching up with the major centers. Bankers said only 55 foreign banks operate here, compared to 130 in Singapore and more than 150 in Hong Kong.

Average daily foreign exchange trading volume in Taiwan is a mere $200 million, compared to about $60 billion in Singapore and a similar amount in Hong Kong, dealers estimated.

Foreign financial firms complain that they are restricted from competing on an equal basis with their Taiwanese rivals in some areas. Each foreign bank, for example, is limited to setting up three branches on the island.

Although the stock market is active, it remains notoriously vulnerable to manipulation by local speculators. The bond market is anemic, while Taiwan has no formal market to trade complex financial products such as futures and options.

In addition, Taiwan lacks the large pool of trained financial staff and excellent communications that have attracted foreign institutions to Hong Kong and Singapore, bankers say.

“Taiwan has the opportunity, but whether we can grasp it is in doubt. We’re starting far behind other centers,” said Edmund Hsueh, chief economist at Core Pacific, a local financial group.

Taiwan has implemented a series of financial reforms in the past two years, easing controls on flows of funds into the island, setting up a small interbank foreign exchange market and allowing foreign banks to take savings deposits.

But bankers say the reforms have been slow and incomplete, hindered by bureaucratic inertia, disagreements within the government and officials’ fears that too rapid change could threaten the island’s financial stability.

Shieh said authorities planned to continue reforms to make Taiwan more attractive to foreign institutions, although he did not give details and said the measures were still under discussion.