“Vision 2020” – AmCham Asks Experts to Peer 12 Years Into the Future - II

By Schive Chi, Chair Professor of Economics, Shih Hsin University.

One important positive development already taking place is the accelerated trend for bank mergers, especially deals involving foreign banks. This trend is important, because the foreign banks will have a very positive influence on industry standards. It also creates significant pressure on the state-owned and -controlled banks to upgrade performance or align with stronger partners.

The problem with our banks is not that they are too small; it is the lack of differentiation among them. They are all doing the same kinds of business, which makes competition very keen and profit margins low. Everyone doesn't have to go after big market share; niche markets can also be quite profitable.

In banking, corporate governance, reputation, transparency, ethics, and social responsibility are of the utmost importance. That requires a sharp separation between the banking system and the political arena. If the next president can make the financial sector truly transparent and independent, then the outlook for the future will be much brighter.

By 2020, the current obstacles to cross-Strait banking activity hopefully would be long removed and our banking sector would be making some significant inroads in the big nearby market that is mainland China. Taiwan's banks are still significantly ahead of their mainland counterparts. They also have a competitive advantage in the large number of Taiwanese enterprises operating in China.

What I have said about the banking sector can also be applied to insurance. Our insurance companies will also be well-positioned to undertake business in China.

For the financial sector to meet its potential, the government needs to improve its supervisory skills and philosophy. The regulators should take the regulated as a partner, rather than seeing the relationship as one between superiors and subordinates. They should avoid over-regulation, and recognize that one purpose of regulation is create a positive environment for the industry. From this perspective, our regulators still have a long way to go. When it comes to introducing new products, for example, Taiwan is still quite heavily regulated.

Other trends over the next 10 or 12 years will be the increased economic integration of this part of the world – opening opportunities for our domestic banks to expand not only in China but elsewhere within the region – and the growth of the securitization market.

Our new labor pension fund will be growing larger and larger, which will boost the securitization market because pension funds are always looking for long-term investments.

Democratic Consolidation: Inspired Political Reform Needs Effective Leadership

By Richard C. Bush, Senior Fellow, The Brookings Institution, and former chairman of AIT.

If the transition to democracy – liberalization, pluralization, and competition for power – is the key first step, consolidation institutionalizes those changes and guarantees both their permanence and their effectiveness.

Taiwan faces daunting choices in addressing the challenge of China. Those choices must be made well, since the Taiwan people will have to live with them for some time to come, perhaps forever. But if the political system – the mechanism by which those choices are made – is defective, then the people's interests will not be well served.

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