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198 Taiwan Development Perspectives 2009
the industry sectors other than financial institutions, and
the general public). Take Taiwan for example. Its official
foreign exchange reserves have reached US$280
billion, against the US$420 billion in private foreign
exchange assets. The Central Bank keeps the foreign
exchange reserves primarily in U.S. bonds and bank
deposits, while private investors hold overseas funds,
bonds and derivatives as foreign exchange assets. For
Taiwan, the financial tsunami has significant influences
on private-owned foreign exchange assets, while the
impact on the foreign exchange reserves held by the
Central Bank is comparatively small. The impact on the
private sector would have possibly been lower, if Taiwan’s
financing industry has internationally competitive
expertise to provide highly value-added products
for them.
What are the financial tsunami’s implications for
to Taiwan’s strategy to turn itself into a cross-strait regional
financial center? For one thing, it has a significant
implication for financial supervision. As even in
the countries with more mature supervisory practices
than Taiwan, such like the United States and the United
Kingdom, large-scaled market failures might still happen,
both external supervision and internal risk management
of the financial institutions are critical issues
to be considered while we are mapping up the strategy
for developing Taiwan into a cross-Strait regional financial
center.
For another, the crisis tells Taiwan of the importance
of cultivating internationally competitive talents.
Financing professionals in Taiwan are generally not
good enough at communication in foreign languages.
What these professionals have to do to do business
worldwide is to improve their cross-cultural communication
ability through systematic training. On the other
hand, as a result of the financial crisis, tens of thousands
of Wall Street professionals have been laid off.
They are seeking new career opportunities. It is time to
get some of them to Taiwan to train our professionals
and help establishment our regional financial center.
Still another implication is that the current turbulences
in global financial markets make more and more
domestic investors withdraw offshore investments, and
shift their capital back to Taiwan. To establish Taiwan
as a regional hub of international financing, we have to
consider offering internationally competitive incentives
for the overseas Chinese (such as attractive tax exemptions),
which could at least compare favorably with
Hong Kong and Singapore, to encourage a capital
backflow. The amendments to relevant laws will facilitate
the development of financial modernization. The
laws which are subject to amendment include Overseas
Banking Unit Act, Securities and Exchange Law, Foreign
Exchange Control Act, Business Tax Act, Income
Tax Act, Trust Business Act, and Securities Investment
Trust and Consulting Act.
Moreover, the financial tsunami teaches Taiwan to
encourage domestic investors to invest in local mutual
funds. Continuing to promote the internationalization of
capital market and enhancing the diversity of financial
products will be important to make the domestic investors
willing to stay in local markets rather than shift
capital aboard looking for promising investments.
Besides, there are several essential aspects to be considered
while we are heading for our vision of becoming
a world-class fund raising center, such as providing
diversified hedging instruments, expanding foreign
participation in local future markets to enhance Taiwan’s
competitiveness and developing cross-strait exchange
rate futures to counteract the potential risks for
the NTD exchange rate policy.
On the other hand, the crisis has made us aware of
the importance of encouraging the issuance of overseas
mutual funds in Taiwan. In Taiwan, the investments in
financial products are taxed on various types of distributions
and capital gains, including dividends, interest,
income from transactions, and insurance payment.
Currently, Taiwan’s taxation system has introduced
some preferential regulations, such as exemptions of
tax on security trading income, futures trading income,
overseas income, insurance payments and the favorable
separate tax rate of 6 percent for securitization transac-