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Cross-strait banking: More than just business

Taiwan and China may have different motivations, but they both wind up at the bank.

Taiwan bank clerk holds Chinese currency
Taiwan banks are aiming to expand into mainland China. Here a Taiwanese bank employee displays Chinese banknotes in Taipei. (Patrick Lin/AFP/Getty Images)

TAIPEI, Taiwan — After years of waiting, Taiwan banks finally have a shot at the mainland Chinese market.

In the last year the two sides agreed on mutual market access for each others' banks — and Taiwan's first branches in the mainland could open up by year's end.

But bank officials and analysts here are surprisingly cautious about what comes next — and many are downplaying expectations.

Their skepticism reflects the complicated dynamics of cross-strait relations, in which business and politics are inescapably linked.

The story of cross-strait banking opening is just one example of a larger contradiction. Taiwan's motivation is money — it wants access to the lucrative China market. But China's motivation is strategic. It hopes closer economic ties will lead to political unification, Beijing's long-cherished dream.

Opening the mainland market to Taiwan banks is just another carrot meant to boost China's economic sway over the island, say analysts. And with a China-friendly president now in power in Taiwan, the carrots are coming fast and furious.

"Because of the cross-strait relationship, the Chinese right now are trying very hard to please Taiwan, and be friendly toward Taiwanese," said Norman Yin, a finance expert at Taiwan's National Chengchi University.

The question is, given the two sides' sharply different dreams, how long can the good feelings last? For skeptics, China's track record isn't encouraging. China's recent, de facto ban on rare earths exports to Japan during a spat between the two countries showed how quick it can be to use its business clout for political ends.

And there's a recent example from Taiwan, too. When pro-independence politicians in southern Taiwan invited the Dalai Lama to tour disaster-hit areas after a 2009 typhoon, Chinese tour groups reportedly canceled trips to southern Taiwan, though it was unclear if this was under Beijing's orders or not. China reviles the Tibetan spiritual leader as a "splittist" and loudly complains to any governments willing to host or meet him.

Tough regulatory landscape

Politics aside, China has a highly-regulated banking market that ultimately answers to the guidance of the state. China's four big state-run banks are run not as commercial enterprises but, first and foremost, as strategic economic entities tasked with helping drive China's development.

"The other issue is the government," said JP Morgan's Taiwan banking analyst Dexter Hsu, commenting on Taiwan banks' prospects in the mainland. "China is highly regulated, so you don't know how many benefits they will give us."

So far, big foreign banks appear to be finding this out the hard way. A recent report from accounting firm KPMG, reported recently by the Wall Street Journal, found that big foreign banks' profits had tumbled in 2009, while China's state-run banks had a banner year.

The Journal explained that foreign banks' mainland units had stricter self-imposed lending limits, while China's state-run banks were all too eager to dole out cash. Some regulations sharply limit what foreign banks can do, such as a $1 million renminbi ($150,000) minimum deposit requirement for foreign banks that effectively bars them from extensive retail banking in China.

In the past two years Taiwan has negotiated a better deal for its banks' mainland operations, compared to foreign banks like HSBC or Citibank. But it will still face the $1 million RMB deposit requirement (Taiwan's banking regulator says it's talking to China to try to change that). And average Chinese will likely be all too aware of the political risks of stashing their money in a Taiwan bank, analysts say.

"If you are Chinese, why would you go to Chinatrust [a large Taiwan bank] branches?" said Pandora Lee, a Taiwan banking analyst for investment house UBS. "You probably wouldn't trust them."