By PERRIS LEE CHOON SIONG
TAIPEI—Taiwan and China clinched long-awaited pacts that will help open their financial industries to each other's companies, marking a significant new step in normalizing economic ties between the rivals.
The three memorandums of understanding, which take effect in 60 days, were finalized Monday by Taiwan's Financial Supervisory Commission and three agencies in Beijing that oversee China's banking, insurance and securities sectors. Taiwanese officials said the agreements will pave the way for Taiwan's banks and securities companies to do business in China like those from other countries—access the island's companies have long coveted. The deals also will help Taiwan's regulator better supervise the Chinese operations of its insurers.
The financial pacts are the latest example of warmer relations between China and Taiwan since President Ma Ying-jeou of the Kuomintang, or Nationalist Party, took office in Taiwan in May 2008 pledging to end decades of mutual antipathy with Beijing. China's government claims self-governed Taiwan as part of its rightful territory that must eventually reunify with it.
Taiwan's banks have been waiting for years for a breakthrough in relations across the Taiwan Strait that would enable them to do business in China.
Their home market, with nearly 40 local banks and more than 30 foreign lenders for just 23 million people, is saturated, and many of their corporate clients have moved the bulk of their manufacturing operations to China, where the financial market is growing rapidly. Chinese financial institutions also have been interested in gaining access to Taiwan.
Seven Taiwanese banks have opened liaison offices in China since 2002, including Taiwan Cooperative Bank and Chinatrust Commercial Bank Co. But without a formal mechanism for cooperation between regulators on the two sides, those banks haven't been able to start doing proper business.
The new deals will pave the way for them to upgrade those representative offices to branches that can lend and take deposits, albeit only in foreign currencies at first.
"We see cross-strait liberalization as structurally positive to Taiwan's financial sector in the long term," Deutsche Bank analyst Nora Hou said in a report this month. "We also believe that it will re-rate the sector in Taiwan, as [the Closer Economic Partnership Arrangement between Hong Kong and China] did."
The deals signed Monday cover areas including information exchange, financial inspection, and crisis management.
Still, the deals leave considerable work to be done. Details over the scope of financial market access between the two sides, such as rules enabling Chinese banks to invest in their Taiwanese counterparts, have yet to be resolved. Those issues are expected to be negotiated in talks over a broader free-trade deal, known as the Economic Cooperation Framework Agreement, that Taiwan and China hope to sign next year
Taiwan also hopes those wider talks will lead to Beijing fast-tracking approval for its banks to start providing local-currency services in the Chinese market, officials on the island said. Under China's agreements for joining the World Trade Organization, the Chinese arms of overseas banks are allowed to take deposits and lend in yuan after three years of operations. Taiwan hopes to reduce that period to less than two years and to gain other preferential treatment.
Yang Yi, spokesman for China's Taiwan Affairs Office said Monday's agreements demonstrate "that the cross-strait financial cooperation has entered a substantial phase."
Write to Perris Lee Choon Siong at Perris.Lee@dowjones.com
Taiwan's Financial Supervisory Commission reached deals with China on market access for banks. Sean Chen, left, is chairman of the commission.
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