China Signs Pact With Taiwan to Open Services Trade Sectors

China and Taiwan, governed separately since a civil war six-decades ago, agreed to give each others’ companies greater access to their services markets as commercial ties deepen across the Taiwan Strait.

The agreement allows Taiwanese companies to take controlling stakes in China joint ventures, streamline approvals and expand geographic operations in sectors including banking, hospitals, construction and tourism, according to the text of the pact posted on Taiwan’s Straits Exchange Foundation website. It was signed today in Shanghai by the heads of the SEF and China’s Association for Relations Across the Taiwan Straits.

Economic ties have surged since Ma Ying-jeou became Taiwan’s president in 2008 and instituted policies to build relations with China. The sides in 2010 signed the Economic Cooperation Framework Agreement, or ECFA, which has paved the way for other pacts including one for investment protection reached last year, today’s services accord and another for agricultural and industrial goods still under discussion.

Today’s agreement “marks the first significant progress in the expansion of cross-strait commercial ties” since ECFA, Peter Kurz, head of Taiwan research at Citigroup Inc., wrote in a June 18 report. The financial industry will be the biggest beneficiary, he wrote.

RQFII Opened

The services agreement ratifies measures announced earlier that allow Chinese investors to hold larger stakes in Taiwan banks and establish areas in which Taiwanese brokerages can hold controlling shares in China ventures, according to Kurz.

Taiwan’s biggest state-invested bank, Bank of Taiwan, is looking to boost its overseas earnings to 35 percent from 30 percent and will apply to set up a sub-branch in Shanghai following a streamlining of sub-branch approvals, Chairman Liu Teng-cheng said in an interview before the signing.

China today agreed to let Taiwan financial firms participate in the Renminbi Qualified Institutional Investor program, without specifying a quota. Chinese regulators said they were considering a 100-billion-yuan quota for Taiwan during a January visit to the island.

“With yuan deposits growing rapidly in Taiwan, it’s important to set up mechanisms for yuan to flow back,” Bank of Taiwan’s Liu said.

Taiwan’s KGI Securities will apply for one of three licenses to set up a controlling-stake joint venture with a Chinese partner in Shanghai, Shenzhen and Fujian province, KGI Securities Chairman Mark Wei said in a telephone interview.

Long Wait

“Taiwan’s brokerages have waited for China to open up its market for a long time,” Wei said. “It doesn’t promise success as there is intense competition locally, but at least Taiwan brokerages now have a chance.”

Today’s agreement allows as much as 55 percent Taiwan ownership in Fujian-registered e-commerce joint ventures, and wholly-owned port-handling and container-yard businesses in the Chinese province.

China has in the past held protectionist policies regarding the e-commerce sector, according to Steven Yang, a research director at the Taiwan Institute of Economic Research.

“Their opening up for Taiwan companies to enter is a significant move,” Yang said.

The new rules make the China market appealing, said Jamie Lu, marketing assistant director at PChome Online Inc., a listed Taiwan Internet company, which offers online shopping via its portal service.

Majority Stakes

“Being able to hold a majority stake is a key concern when it comes to entering the China market,” Lu said, adding that PChome may apply for an Internet Content Provider license in China.

Hospitals in provincial capitals in China are now allowed to be wholly-owned by Taiwanese. Across the strait, Chinese investors can set up joint-venture hospitals in Taiwan. Chinese travel agencies are now allowed to set up in Taiwan.

While qualified Taiwanese construction companies are allowed to bid for Chinese projects under the agreement, financing difficulties may hinder their efforts, according to Huei-Shing Yen, a researcher at the Chung-Hua Institution for Economic Research.

“There are still plenty of details in practice, like administrative processes, that keep Taiwan companies from actually running businesses in China,” Taiwan Institute’s Yang said. “The opening up in some areas is more symbolic than meaningful.”

Consumption and Investment

China’s continued urbanization will stoke consumption and investment, Premier Li Keqiang said at a March 17 press briefing.

Services accounted for 48 percent of China’s economy in the first quarter of 2013, a greater share than manufacturing for the first time, Xinhua News Agency reported May 24, citing central bank data.

“With China’s increasing emphasis on the service sector, the trade pact is significant for Taiwan’s companies to benefit from its policy in the long term,” Roy Lee, deputy executive director of Taiwan WTO and RTA Center of the Chung-Hua Institution for Economic Research, said in an interview before today’s signing.

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