TAIPEI: The mainland's qualified domestic institutional investors (QDIIs) will be allowed to invest in Taiwan's stock market after a memorandum of understanding on financial regulatory cooperation between the two sides takes effect.

Under the MOU, which was signed Monday and will take effect within 60 days, Taiwan and the mainland will work together to exchange and protect the confidentiality of information, establish a mechanism to deal with possible financial crises, and conduct financial examinations, Financial Supervisory Commission (FSC) chairman Sean Chen said Monday after representing Taiwan in signing the documents.

Once the MOU comes into effect, the mainland's QDIIs will be allowed to invest up to 10 percent of their assets in Taiwan's stock market, according to Chen.

The mainland has 12 QDIIs and its State Administration of Foreign Exchange (SAFE) had granted the 12 QDIIs investment quotas of about $10 billion (NT$325 billion) as of the end of October.

Based on the 10 percent maximum investment limit in Taiwan's stock market, the 12 QDIIs will be able to inject up to approximately NT$30 billion in the local bourse.

Under existing regulations on the mainland, local QDIIs are allowed to invest only up to 3 percent of their assets in public and corporate bonds in regions that have not signed an MOU with Beijing.

Meanwhile, Bloomberg reported yesterday Cathay Financial Holding Co, Taiwan's biggest publicly traded financial services company, plans to accelerate expansion on the mainland after both sides agreed to improve access to their financial markets. Other Taiwan banks intend to follow suit.

Cathay Financial, based in Taipei, will seek to upgrade its representative office on the mainland to a branch, after the signing Monday of the memorandums of understanding, President Chen Tsu-pei said by telephone yesterday. Mega Financial Holding Co plans to upgrade its office in the eastern city of Suzhou into a branch, spokeswoman Grace Lin said.

Bank of China Ltd and Industrial & Commercial Bank of China Ltd are vying to be the first mainland lenders to open branches in Taiwan.

Mega Financial's Lin said his company is excited to have the opportunity to enter the mainland market, which has a lot of growth potential at a time when margins in the home market are getting squeezed. For mainland banks seeking a presence in Taiwan, he noted, it is more symbolic than economic as Taiwan's banking industry is smaller and more fragmented.

Taiwanese banks' eight representative offices on the mainland aren't allowed to offer banking services, and are limited to doing marketing and research.

Mega Financial, Taiwan's second-largest financial services company by market value, plans to seek approval to set up bank branches in Beijing and Tianjin and in the provinces of Fujian, Shandong and Liaoning, Lin said. The company is also considering taking stakes in smaller mainland city commercial banks to speed up expansion, Lin said.

Taipei-based China Development Financial Holding Corp, owner of Taiwan's largest venture capital firm, aims to set up a branch in Shanghai when the new rules become effective, spokesman Simon Dzeng said by telephone.

The accord with the mainland may help Taiwan's drive to consolidate the island's 37 domestic banks. On November 12, the island's regulator issued draft rules to tighten requirements for branches of non-Taiwanese banks in anticipation of mainland lenders coming to Taiwan.

This is a big step on the political side and mainland banks are keen to show their support, said Li Qing, an analyst at CSC Securities HK Ltd. The reality is the Taiwan market is too small and saturated for mainland players to care much about. It's more meaningful for the Taiwan counterparts who can expand in a much bigger market, he added.

Bank of China, the mainland's third-largest lender, said yesterday it will apply to open a branch in Taiwan. ICBC, the world's most profitable bank, needs a presence in Taiwan and wants to expand there, Chairman Jiang Jianqing said on November 13.

The island's Mainland Affairs Council estimates that the unofficial investment by Taiwanese companies on the mainland is between $150 billion and $200 billion.

China Daily/Agencies

(HK Edition 11/18/2009 page2)