Hang Seng invests in Taiwan Strait Economic Zone
March 16, 2012 | BY
clpstaff &clp articles &Preferential policies for cross-strait investment are benefiting Taiwanese entrepreneurs. While some are still concerned about risks such as exit restrictions and the dispute resolution mechanism, foreign financial institutions are already benefiting from the growing business.
According to Xinhua, Hang Seng Bank opened its second branch this week in Xiamen, in eastern China's Fujian province. The province is home to the Western Taiwan Strait Economic Zone.
Investors from Taiwan enjoy preferential policies in the economic zone since the State Council issued Several Opinions on Supporting the Accelerated Establishment of the Taiwan Straits West Coast Economic Zone by Fujian Province (国务院关于支持福建省加快建设海峡西岸经济区的若干意见). These include a favorable approval process compared with investments from Wholly Owned Foreign Enterprises and in the shipping and aviation sector, under the cross-strait three linkages scheme.
Banks with a presence in the Zone are likely to see a growth in consumer banking, credit card and corporate financing, said Hao-Ray Hu of Baker & McKenzie. Many Taiwan businesses set up trading companies in Hong Kong as an intermediate vehicle, which is an advantage for Hong Kong-based banks in China.
“However, the five-year lock-up period for exits still makes some Taiwanese companies hesitant, even some government-owned banks,” says the Taipei-based partner.
A typical example is the financing advanced to local government for infrastructure projects, which are normally in the form of an unsecured loan and therefore with a less solid portfolio. In these cases, enforcement against the government would be a problem.
“Investors wish to avoid the risks to prove that their investments are under statutory exceptions – material default such as misrepresentation,” said Hu. “The local government financing is not within one of the recognised exceptions yet, although some practitioners voiced a desire to do so” he also noted.
Further risk lies as investors fear so-called local protectionism or industrial monopoly, particularly in commercial disputes where there is a concern that foreign parties would be put in a weaker position.
“We hope to see a more neutral mechanism for dispute resolution, for example, an option for the governing law applied under Hong Kong or Singapore law,” Hu suggested.
Investments from Taiwan are governed by the same laws and regulations as those for foreign investors. A legislation addressing issues with Taiwan in particular is the PRC Law on the Investment Protection for Taiwanese Compatriots (台湾同胞投资人保护法) promulgated in 1993. Many commentators propose an urgent need for an amendment to the law, brining it in line with modern times.
The legal environment for investment from Taiwan has relaxed in the past decade. However, there are statutory imposed restrictions in Taiwan. For example, an investment ceiling and a cap on the percentage of the investment a Taiwan investor is allowed to hold under a joint venture in China.
By Janice Qu
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