US embassy cable - 06TAIPEI172 (original version)

IS THIS A TAIWAN BANK? (original version)

Identifier: 06TAIPEI172
Wikileaks: View 06TAIPEI172 at Wikileaks.org
Origin: American Institute Taiwan, Taipei
Created: 2006-01-18 21:31:00
Classification: CONFIDENTIAL
Tags: ECON EFIN PINR TW CH HK
Redacted: This cable was redacted by Wikileaks. [Show redacted version] [Compare redacted and unredacted version]
VZCZCXRO5230
RR RUEHCN
DE RUEHIN #0172/01 0182131
ZNY CCCCC ZZH
R 182131Z JAN 06
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 8061
INFO RUEHBJ/AMEMBASSY BEIJING 4531
RUEHCN/AMCONSUL CHENGDU 0970
RUEHGZ/AMCONSUL GUANGZHOU 8876
RUEHHK/AMCONSUL HONG KONG 5729
RUESLE/AMCONSUL SHANGHAI 8277
RUEHSH/AMCONSUL SHENYANG 4887
RUEAIIA/CIA WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
C O N F I D E N T I A L SECTION 01 OF 02 TAIPEI 000172 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EAP/EP AND EAP/TC 
TREASURY PASS FEDERAL RESERVE BOG AND SAN FRAN FRB 
 
E.O. 12958: DECL: 01/19/2016 
TAGS: ECON, EFIN, PINR, TW, CH, HK 
SUBJECT: IS THIS A TAIWAN BANK? 
 
REF: 05 TAIPEI 4938 
 
Classified By: AIT Director Douglas Paal, Reason 1.4 d 
 
1.  (C) Wells Fargo Asia Regional Manager/Senior Vice 
President recently contacted AIT/Econ for advice on a problem 
involving the Taiwan-China relationship.  The problem he 
described illustrates some of the complexities in 
cross-Strait banking, the mixed ownership of multinational 
companies, and the different approaches of different Taiwan 
government agencies. 
 
Who Owns What 
------------- 
 
2.  (C) Wells Fargo has owned 20% of Shanghai Commercial Bank 
(Hong Kong) (SCBHK) for 37 years.  SCBHK is also 57% owned by 
Shanghai Commercial Savings Bank (Taiwan) (SCSB) and 23% 
owned by the municipal government of Shanghai.  In turn, 
SCBHK owns 3% of the PRC state-controlled Bank of Shanghai. 
In addition to 43 branches in Hong Kong, one in the UK, and 
three in the U.S., SCBHK has a fully-licensed foreign branch 
in Shenzhen, China and a rep office in Shanghai.  SCBHK has 
about US$10 billion of assets in Hong Kong, about 22% 
capitalized.  SCBHK in turn owns significant equity in SCSB. 
The major shareholders of SCSB Taiwan are the Yung and Lee 
families, which fled Shanghai for Hong Kong in the late 
1940,s, but still have deep political and economic 
connections on both sides of the Taiwan Strait.  Given that 
SCSC originated in China, some 28% of equity is still held by 
people residing in China.  These shares have been put into a 
trust and are managed separately. 
 
Is SCBHK a Taiwan Bank? 
----------------------- 
 
3.  (C) SCBHK wishes to convert its rep office in Shanghai 
into a fully-licensed foreign branch as well, but has been 
unable to obtain approval (or non-objection) from Taiwan 
banking regulators.  Given the 57% ownership by SCSB of SCBHK 
Taiwan banking regulators assert that their permission is 
pre-requisite for any expansion into mainland China by SCBHK. 
 A little over a year ago, SCBHK obtained permission 
(actually, a letter of non-objection) from Taiwan banking 
regulators (the Financial Supervisory Commission (FSC) 
Banking Bureau) to convert its (then) rep office in Shenzhen 
into a fully-licensed branch. 
 
4.  (C) However, shortly after the FSC letter of 
non-objection was issued, China passed its Anti-Secession Law 
in early 2005 which sent cross-Strait relations into a 
temporary tailspin.  In response to the PRC action, Taiwan's 
Mainland Affairs Council ordered the FSC letter of 
non-objection rescinded.  Although the letter was rescinded, 
SCBHK had already established a fully-functional, 
fully-licensed branch in Shenzhen.  Taiwan banking regulators 
are fully aware of this unique situation, but have done 
nothing about it, leaving SCBHK as the only "Taiwan" bank 
with an operational branch in China. 
 
5.  (C) Taiwan regulators currently take the view that no 
Taiwan banks should establish branches in China until there 
is an agreement on regulatory supervision of banks between 
Taiwan and China.  However, so far, political sensitivities 
have made it impossible to establish such an agreement. 
 
6.  (C) Wells Fargo wanted AIT's advice on whether to 
approach Taiwan regulators with these facts in hope of being 
exempted from the regulations covering Taiwan banks.  AIT 
offered to relay discreetly the question to banking 
regulators (Wells Fargo said it would discuss the AIT offer 
with SCBHK's Taiwan shareholders before responding to our 
offer), but believes there is little to no chance of SCBHK 
being considered anything other than a Taiwan bank as long as 
it is 57% owned by a Taiwan bank.  However, AIT believes that 
if Wells Fargo were to increase its stake to become the 
largest shareholder, a good case could be made that SCBHK is 
no longer a Taiwan bank. 
 
7.  (C) Comment: This case provides an example of the 
disarray of Taiwan agencies on cross-Strait policy and 
 
TAIPEI 00000172  002 OF 002 
 
 
implementation and its impact on U.S. companies, as well as a 
marvelous description of the high level of integration in 
business circles throughout Greater China, and especially 
across the Strait.  People talk about how complex and 
sensitive relations are across the Strait, but as we 
previously noted in the airline business, people on both 
sides of the Straits often have well-established relations, 
know each other's business, and have real commercial 
opportunities that they can exploit, but Taiwan and Beijing 
policies prevent the companies from implementing rational 
arrangements. 
 
8.  (C) Leading families in Greater China often hedge their 
bets by assigning different branches of the family to 
different geographic locations, or, as we often see in 
Taiwan, employ a deliberate strategy of having some members 
of the family support the ruling party and others support the 
opposition parties.  The emerging results are global business 
networks that transcend country, culture, and language, and 
that are well-positioned for an increasingly important role 
in a globalized economy.  These mixed institutions offer some 
unique channels to strengthen practical cross-Strait 
cooperation, but only if authorities on both sides are 
prepared to be flexible and supportive.  Post January 1, 
prospects appear dim on the Taiwan side at least for the 
short term. 
PAAL 

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