Taiwan is well-positioned to seize potential capital outflows triggered by the enactment of a new security law in Hong Kong and the intensifying trade frictions between the United States and China, three analysts told VOA.
This will pave the way for the island to create a niche as a regional corporate financing or high net worth asset management center, although mounting challenges lie ahead for it to deregulate its financial industry in achieving the goal, the analysts added.
The goal is in line with President Tsai Ing-wen's, who told local business tycoons last week that her administration plans to liberalize the local economy soon by becoming an Asian financial hub.
Hong Kong’s capital flight
“Under its new security law, Hong Kong’s role as a regional financial hub has been greatly weakened when it comes to its function in both wealth management and corporate financing," said Hwang Dar-yeh, dean of the privately run Academy of Promoting Economic Legislation. "(Any capital flight), especially by Chinese-speaking investors, is likely to next go to Singapore or Taipei. So, now presents a great opportunity for Taipei to pursue that goal.”
Taiwan is unlikely to immediately compete with Singapore or Hong Kong — two major financial hubs in Asia that respectively ranked fifth and sixth in the latest Global Financial Centers Index.
Lagging behind most of the world’s 108 financial centers, Taipei ranked 75th in the index, released in March by London-based consultancy Z/Yen Group and the China Development Institute, based in Shenzhen.
Taipei’s geostrategic importance
Hwang said Taipei enjoys a higher geostrategic importance than Singapore now that Taiwan and the United States seek to diversify and move away from their traditional reliance on trade with China.
Under these circumstances, Taiwanese companies based in China may consider going public in Taiwan, or individuals with a high net worth may opt to exit Hong Kong and park their assets elsewhere, including Taipei, according to Hwang.
Since 2019, Taiwan’s financial regulator has launched several relaxation policies, including deregulating offshore banking units and allowing more new products in financial institutions’ wealth management portfolios, for clients with a net worth of more than $34 million.
It is also seeking to accommodate China-based Taiwanese companies, which have been impacted by the U.S.-China trade war and repatriated more than $340 billion to Taiwan as of the end of June, official statistics showed.
More needs to be done
Schive Chi, former chairman of Taiwan Stock Exchange Corporation, said Taiwan needs to do more to catch up.
“Insufficient product lines or capital flows, which aren’t totally free, will limit Taiwan’s scale (and scope) of developing (its financial market). There’s plenty of opportunity up for grabs, but whether you can seize (it) is another story,” Schive told VOA in a phone interview.
Both Hwang and Schive said Taiwan should improve its financial infrastructure by attracting financial talent from overseas, introducing innovative policies and allowing the island’s currency exchange rate to free-float with no interference from the central bank — overall, an open, transparent and free market in which foreign investors will take an interest.
Preferential tax rates
Taiwan also needs to impose preferential tax rates, which are competitive enough to attract foreign investors, said William Lin, a professor of banking and finance at Tamkang University in Taipei.
Lin said the size of assets under management in Singapore has greatly outgrown that of Taiwan in the past two decades after Singapore introduced a preferential tax regime, including having its withholding tax waived in 2000.
Compared to Singapore, Taiwan has a number of upper-handed advantages should it try to boost wealth management businesses, he said.
“We have many advantages. First of all, Taiwan’s size of local capital is bigger than that in Singapore. We’ve totaled an idle capital of NT$6 trillion ($340 billion), including NT$2.4 trillion ($81.6 trillion of excess savings) in the banking sector. With a small population of 23 million people, the local insurance sector’s annual premium income is the seventh largest in the world,” Lin said.
Other than capital, Taiwan’s tech prowess, hardworking labor, and talent pool in innovation-oriented and biotech industries will prepare it to tap emerging opportunities from the region’s wealth management and corporate finance landscape, he said.
Tsai’s administration has targeted seven innovative industries, including smart machinery, green energy and biomedicine, to help upgrade the local economy from contract manufacturing to a high value-added model.
