Conflict Among Nations: Trade Policies in the 1990s by Thomas R Howell

Author:Thomas R Howell [Howell, Thomas R]
Language: eng
Format: epub
ISBN: 9780429690457
Goodreads: 44597716
Publisher: Routledge
Published: 2019-03-04T00:00:00+00:00

Acceding to these pressures, the government has been pursuing a policy of piecemeal liberalization, emphasizing special concessions to U.S. firms, rather than wholesale liberalization. The slow pace of financial liberalization is attributable to several factors: (a) fear of loss of control of the financial system, which could result in economic chaos; (b) desire to prevent wholesale capital flight into unproductive overseas investments; (c) desire to prevent Taiwan’s developing financial services sector from being destroyed by full exposure to foreign competition; (d) lack of pressure by established foreign banks for further liberalization (they have no desire to open themselves to further competition).

Taiwan’s securities market remains subject to significant restrictions on foreign firms. Investment in Taiwanese Securities firms is permitted under the Securities and Exchange Law, but not to an extent that permits foreign majority restricted, and there is no effective system for marketing foreign securities in Taiwan.185 In June 1989, the Securities and Exchange Commission indicated it would grant three foreign brokerage houses licenses to open branch offices in Taipei, although their activities would be limited to selling stocks and bonds listed on the New York, Tokyo and London stock exchanges. Their licenses do not permit them to underwrite local securities issues. The SEC’s criteria for these licenses were so strict that only about a dozen firms worldwide were eligible; most of these were Japanese firms which could not secure approval from Japan’s Ministry of Finance to acquire the licenses. Eventually two brokerage firms, Merrill Lynch and Shearson Lehman Hutton opened branches in Taipei.186 The purpose of permitting these branch openings was to give Taiwanese investors an opportunity to purchase securities in other markets. Taiwan authorities indicate that three such branches are sufficient; there will be “no more at the moment.”187

U.S. pressure on Taiwan to liberalize its securities market seeks to enable U.S. citizens to invest in the Taiwan stock market, sell overseas securities to Taiwanese investors, and to permit U.S. firms to participate in the various intermediary services such as brokerage and underwriting. Taiwanese financial officials reportedly oppose U.S. objectives because of a “stuff it in the mattress” mentality; they have been trying to stabilize financial markets by extracting liquidity from the system (“stuffing in the mattress”). The U.S. demands for entry are seen as opening the door for additional large volumes of funds which will be used to “gamble” on the stock market, and further destabilize capital markets. In addition, further liberalization could facilitate the rapid flight of Taiwan’s foreign exchange overseas into investments (such as foreign securities) which do little to advance Taiwan’s economic development.188 The wild gyration of the Tokyo stock exchange in March 1990 underscores these concerns. Japan has recently liberalized its financial markets under U.S. pressure.

The banking system, until now dominated by the government, is in a state of upheaval. The government has traditionally limited the number of banks through denial of new licenses; in 1989, Taiwan had 24 major domestic commercial banks, of which the government held a majority share in 13. There were also a number of large, underground institutions whose extent, size and holdings were unknown.

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