Taiwan: the soft takeover
China's yuan currency starts trading in Taiwan
So Taiwan has started trading in Chinese yuan. And along with the yuan, the major banks from mainland China have stepped on the Taiwanese financial market as well. The Taiwanese bankers are now looking forward to the brave bright future for their business, hoping to turn Taipei into a big centre of the emerging global currency trade. But along with that, the Republic of China might be facing the looming threat of ultimately losing its financial independence.
On Feb 11, the Central Bank of Taiwan announced that 46 financial institutions on the island would begin operating with Chinese yuan. Starting from Feb 6, the Taiwanese banks were granted the right to provide loans, make bank transfers and open deposits in Renminbi (as is the official name of the Chinese national currency). Also the Taiwanese banks now have the opportunity to trade in yuan-denominated bonds on the stock exchanges of Hong Kong and PRC itself.
On the first day of trading, the Taiwanese customers opened deposits worth 1.3 billion yuan (~$208 million), and btw the experts from the Standard Chartered Bank announced in the beginning of the month that they're expecting that 3-5% of all deposits that are currently in Taiwanese dollars would've been already transferred into yuan by the end of February. It's also worth noting that the Taiwanese banks have set quite a high rate of return on deposits denominated in yuan: for example, at the First Commercial bank this could reach a 2.38% annual rate, while in China the usual return rate of similar deposits is less than 1%.
Of course, this major financial step in the Sino-Taiwanese relations can't go without being coupled with the relevant political steps as well:
Hu suggests military security trust mechanism, peace agreement with Taiwan
But let's stick to the financial side of the Chinese "soft invasion" for a while. As is so typical for most other China-related issues, certain restrictions are being placed in all this promising currency trading. For example, for Taiwanese individual customers there's a daily limit on these transactions for purchasing only up to 20 million yuan (slightly more than $3000), and the maximum amount for a single money transfer to China is currently set at 80K yuan.
Now, Taiwan's massive excitement for the Chinese currency is quite understandable. Last December the trade surplus in Taiwan's trade with China exceeded $6.5 billion. The Chinese market sucks in roughly 40% of all Taiwanese exports, and it's in mainland China where the biggest Taiwanese companies are trying to place most of their production capacities, due to the lower cost of labour.
Currently, Taiwan is the third in terms of yuan clearings after Hong Kong and Macao, the two special administrative regions of PRC. The island's financial role will now be additionally enhanced, because so far Hong Kong has been the only place where a contact between the Chinese yuan markets and the London stock exchange could be made. Nevertheless, this change in financial relations will hardly remove Hong Kong from its pedestal of the leading place for yuan trading.
Many economists believe that the rising demand for the yuan will increase the amount of currency floating in Taiwan and this will strengthen the Renminbi, which China has been planning to turn into a fully fledged global reserve currency for quite some time.
And of course the yuan is bringing along all the big Chinese banks to Taiwan: Bank of China, China Construction Bank and many more. In the future they'll be able to put some pressure on their local counterparts, and tilt the Taiwanese market much to their liking.
Naturally, the US cannot be too happy with the increasing Chinese influence in Taiwan. For example, the Republican senator John Cornyn urged Taipei to abandon their long-term practice of reducing their military spending, to consider buying the old F16 fighters that the US was offering, and to take the "threat" from the mainland more seriously. Of course, the bottom line is quite simple: slowly losing one of their most important outposts that sits right under the nose of their main rival in the region (and emerging global player) would potentially be a tremendous geopolitical blow on America's interests, and everyone in DC must be well aware of the implications of what's happening.
The agreement to commence yuan trading has become a landmark event for the relationship between Taiwan and mainland China, who've been in a de jure state of war ever since 1949 when the island was occupied by the supporters of the Kuomintang under the leadership of Chiang Kai-shek, who were driven off the mainland by the communist revolutionary forces of Mao Zedong. PRC has never relinquished their claim on the entire territory of the island. While some warming between PR China and the Republic of China has been happening lately, the ruling party in Taipei, calling itself no else but Kuomintang (part of the so called "blue coalition" which views the reunification with China as its top priority) would hardly risk increasing the financial independence from the mainland too much. Besides, that would automatically pull more votes to the Democratic Progressive Party (leader of the "green coalition"), which is seeking for a declaration of Taiwan as a fully independent, sovereign state. After all, the political balance in Taiwan can be very fragile in this respect, and any sharp moves could cost elections.
China, whose economy already ranks 2nd in the world since 2012, has been trying to reduce its reliance on the dollar (which they view as a hollow, unreliable currency), and strengthen the status of the yuan as a major global reserve currency. There are lots of indications suggesting that the next financial center to start trading in yuan would be Singapore. The local government has already signed the relevant agreements with the People's Bank of China earlier this month. Seems like the Chinese are staying true to their habit of thinking long-term and doing things slowly, gradually, with patience, and ultimately achieving their goals through soft power rather than bombs. One thing is for sure: the initiative definitely is in their hands right now.
So Taiwan has started trading in Chinese yuan. And along with the yuan, the major banks from mainland China have stepped on the Taiwanese financial market as well. The Taiwanese bankers are now looking forward to the brave bright future for their business, hoping to turn Taipei into a big centre of the emerging global currency trade. But along with that, the Republic of China might be facing the looming threat of ultimately losing its financial independence.
On Feb 11, the Central Bank of Taiwan announced that 46 financial institutions on the island would begin operating with Chinese yuan. Starting from Feb 6, the Taiwanese banks were granted the right to provide loans, make bank transfers and open deposits in Renminbi (as is the official name of the Chinese national currency). Also the Taiwanese banks now have the opportunity to trade in yuan-denominated bonds on the stock exchanges of Hong Kong and PRC itself.
On the first day of trading, the Taiwanese customers opened deposits worth 1.3 billion yuan (~$208 million), and btw the experts from the Standard Chartered Bank announced in the beginning of the month that they're expecting that 3-5% of all deposits that are currently in Taiwanese dollars would've been already transferred into yuan by the end of February. It's also worth noting that the Taiwanese banks have set quite a high rate of return on deposits denominated in yuan: for example, at the First Commercial bank this could reach a 2.38% annual rate, while in China the usual return rate of similar deposits is less than 1%.
Of course, this major financial step in the Sino-Taiwanese relations can't go without being coupled with the relevant political steps as well:
Hu suggests military security trust mechanism, peace agreement with Taiwan
But let's stick to the financial side of the Chinese "soft invasion" for a while. As is so typical for most other China-related issues, certain restrictions are being placed in all this promising currency trading. For example, for Taiwanese individual customers there's a daily limit on these transactions for purchasing only up to 20 million yuan (slightly more than $3000), and the maximum amount for a single money transfer to China is currently set at 80K yuan.
Now, Taiwan's massive excitement for the Chinese currency is quite understandable. Last December the trade surplus in Taiwan's trade with China exceeded $6.5 billion. The Chinese market sucks in roughly 40% of all Taiwanese exports, and it's in mainland China where the biggest Taiwanese companies are trying to place most of their production capacities, due to the lower cost of labour.
Currently, Taiwan is the third in terms of yuan clearings after Hong Kong and Macao, the two special administrative regions of PRC. The island's financial role will now be additionally enhanced, because so far Hong Kong has been the only place where a contact between the Chinese yuan markets and the London stock exchange could be made. Nevertheless, this change in financial relations will hardly remove Hong Kong from its pedestal of the leading place for yuan trading.
Many economists believe that the rising demand for the yuan will increase the amount of currency floating in Taiwan and this will strengthen the Renminbi, which China has been planning to turn into a fully fledged global reserve currency for quite some time.
And of course the yuan is bringing along all the big Chinese banks to Taiwan: Bank of China, China Construction Bank and many more. In the future they'll be able to put some pressure on their local counterparts, and tilt the Taiwanese market much to their liking.
Naturally, the US cannot be too happy with the increasing Chinese influence in Taiwan. For example, the Republican senator John Cornyn urged Taipei to abandon their long-term practice of reducing their military spending, to consider buying the old F16 fighters that the US was offering, and to take the "threat" from the mainland more seriously. Of course, the bottom line is quite simple: slowly losing one of their most important outposts that sits right under the nose of their main rival in the region (and emerging global player) would potentially be a tremendous geopolitical blow on America's interests, and everyone in DC must be well aware of the implications of what's happening.
The agreement to commence yuan trading has become a landmark event for the relationship between Taiwan and mainland China, who've been in a de jure state of war ever since 1949 when the island was occupied by the supporters of the Kuomintang under the leadership of Chiang Kai-shek, who were driven off the mainland by the communist revolutionary forces of Mao Zedong. PRC has never relinquished their claim on the entire territory of the island. While some warming between PR China and the Republic of China has been happening lately, the ruling party in Taipei, calling itself no else but Kuomintang (part of the so called "blue coalition" which views the reunification with China as its top priority) would hardly risk increasing the financial independence from the mainland too much. Besides, that would automatically pull more votes to the Democratic Progressive Party (leader of the "green coalition"), which is seeking for a declaration of Taiwan as a fully independent, sovereign state. After all, the political balance in Taiwan can be very fragile in this respect, and any sharp moves could cost elections.
China, whose economy already ranks 2nd in the world since 2012, has been trying to reduce its reliance on the dollar (which they view as a hollow, unreliable currency), and strengthen the status of the yuan as a major global reserve currency. There are lots of indications suggesting that the next financial center to start trading in yuan would be Singapore. The local government has already signed the relevant agreements with the People's Bank of China earlier this month. Seems like the Chinese are staying true to their habit of thinking long-term and doing things slowly, gradually, with patience, and ultimately achieving their goals through soft power rather than bombs. One thing is for sure: the initiative definitely is in their hands right now.