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May 29, 2017

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Taiwan to decouple RQFII from passing of a cross-strait pact

TAIPEI, Taiwan -- In the sixth cross-strait economic cooperation summit to be held next month, the government will try to cut the tie between Taiwan obtaining the Renminbi Qualified Foreign Institutional Investor (RQFII) qualification and the passage of the Cross-Strait Trade in Services Agreement.

 The RQFII program allows a small number of Taiwanese financial firms to establish renminbi-denominated funds in Hong Kong for investment in the mainland. The aim being to allow overseas investors to use offshore renminbi deposits to invest in the mainland securities markets.

Under the current cross-strait negotiation framework, the RQFII standing is tied to the passing of the cross-strait services pact, which, however, is bogged down in the Legislature after a student-led mass demonstration opposing the agreement.

Sources say a preliminary meeting for the sixth cross-strait economic cooperation summit is to be held in Beijing this week.

Impact on Local Financial Institutions

With the cross-strait services pact stuck in limbo, many financial services firms have complained that their expansion of services into mainland China has been thwarted. As such, the government will aim to undo the tie between the services pact and various financial services, besides the RQFII standing.

The Chinese government may approve Taiwan's request, while asking Taiwan to open up other sectors in return, analysts said.

Authorities from both sides are also set to hold the fourth financial and banking industry talks in September. The Financial Supervisory Commission (FSC) will try to win the privilege for local banks to establish multiple branches in a province. The practice is currently allowed in Fujian Province, and the FSC has set its eyes on Guangdong Province and Jiangsu Province.

If approved, Taiwanese banks will be able to conduct Renminbi related business upon setting foot in China, instead of waiting for one year.

What Insurers and Banks Want

Chinese regulations dictate that foreign banks establishing branches in the mainland can only do so in the same city, instead of the same province, which therefore slows banks' expansion pace.

Also, many small and medium-sized banks have expressed their intention to strike inward in China. However, there is a US$20 billion asset value requirement.

According to local officials, the FSC would like to hold securities and insurance related summits with its counterparts in China as well, but schedules have not been decided yet.

Insurance companies want to have more than one investment partner in a joint venture in mainland China, and to have the right to hold a 50-percent or more stake of a joint venture with Chinese insurers. The FSC is likely to raise these issues in talks with Chinese authorities in the upcoming meeting.

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