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Last week, the Financial Supervisory Commission in Taipei announced it is annulling the ban on mainland investments by locally raised private equity funds. The announcement is the latest in a string of reforms put forward by TaiwanÆs regulators and government think-tanks to help recoup lost ground from Hong Kong as the regionÆs asset management hub.
The ruling reverses a ban made in January 2003 during the first term of former president Chen Shui-bianÆs administration, by the former Securities & Futures Bureau under the Ministry of Finance. (The bureau was consolidated into the FSC, along with the Insurance Bureau, Banking Bureau and Financial Examination Bureau in later years.)
All direct and indirect investments into mainland China will now be regulated in accordance with the islandÆs securities law, section 43 clause number 6. Funds can now raise assets from the liquidity-soaked Taiwanese markets directly and put this money to work in mainland China.
On a historical basis, Taiwanese merchants have been among the earliest and the biggest group of investors in China venture capital as well as early start-ups in Vietnam until the years of ChenÆs administration, which was allergic to business and financial relations with Communist regimes. During Chen's term in power, virtually all China-related deals were brought to a halt.
While it is now theoretically feasible to revive the flow, Taiwan shares a similar financial regulation framework with mainland China and investors accustomed to international standards may doubt the security and legal protection of their private equity investments. Market observers say, while there is a definite threat looming over Hong KongÆs long-term viability as a fund-raising destination, the city still offers value in its impartial legal system.
The latest rule change adds to TaiwanÆs previous round of announcements, including welcoming Chinese institutions to invest in Taiwan and the removal of foreign ownership restrictions by overseas investors or Chinese clients.
AsianInvestor magazine will review and reassess the long-term significance of TaiwanÆs ongoing financial reforms, against a backdrop of the global financial crisis in the coming November issue.
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