Chapter 4: Trends for future integration of commercial banking between Taiwan and China after the ECFA
China is the one of the fastest- growing economies worldwide and is the first choice for Taiwanese foreign direct investments. By the end of 2010, Taiwan invested US $159.84 billion in China. Major industries between Taiwan and China have integrated or become horizontally and vertically connected. Nevertheless, no such integration exists in the banking industry, owing to regulatory and political issues. Since Taiwan and China joined the WTO (World Trade Organization) in 2002 and 2001 respectively, and China promised open banking and insurance markets in 2006, major Western banks have invested shares in major Chinese state- owned banks (see details in Hong and Zheng, 2009; Kuan et al., 2009). Taiwan’s banks may also grasp this opportunity to expand their business in China, whereas China can demonstrate its economic power in Taiwan by establishing its banking branches. The promise of opening financial markets was fulfilled in the Memorandum of Understanding (MOU) and the Economic Cooperation Framework Agreement (ECFA) between Taiwan and China. The MOU was signed on November 16, 2009, and became valid on January 16, 2010. The MOU and the ECFA further integrate financial markets between Taiwan and China. Within 3 to 5 years after the ECFA, Taiwan and China will open their banking and insurance markets to each other to establish cross- border branches.
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