The Chinese yuan's exchange rate has become a hot topic in international financial markets. Newspa-per reports quoted people at the People's Bank of China as saying the bank was definitely preparing to move toward raising the yuan's value, but China has also taken many new measures recently to ease the pressure on the yuan to appreciate.
The international pressure on the yuan, however, has risen instead of easing. Expectations of the yuan's appreciation has caused capital around the world to rally into Asia. Taiwan will be the biggest market to benefit from the yuan's appreciation.
The US dollar has depreciated drastically against major currencies in the first half of this year, but the Asian currencies have not risen substantially. The key factor is the Chinese yuan being pegged to the US dollar. A pegged yuan means that, when the US dollar depreciates, the yuan also maintains a weak position against other major currencies.
Second, the undervalued yuan maintains a relatively strong competitiveness. In other words, China is using the advantage of an under-valued currency to grab large numbers of export orders and earn massive amounts of foreign currency. Of course, this creates considerable pressure on its Asian neighbors.
China is unwilling to raise the value of its currency and cause the loss of orders. If the yuan is forced to appreciate, the value of financial assets will rise rapidly, and Taiwan's capital market will turn bullish to an extent rarely seen in the past few years.
As Asian stock markets gradually recover this year, the foreign capital that fled Asia in the 1990s is now returning. In terms of capital flow, all Asian stock markets are seeing overbuys. Foreign capital's enthusiasm for investment in Asia remains unabated.
As of mid-August, Japan led the pack in Asia with an overbuy of US$34.23 billion, followed by Taiwan at US$7.81 billion, South Korea at US$3.88 billion and India at US$2.04 billion. This shows that international capital holders are maintaining an optimistic outlook for Asia's export and domestic consumption growth. Global capital is shifting from concentrating in Europe and the US in the 1990s, and moving toward Asia.
Amid this wave of adjustment in the international economic system, Asian countries, without exception, are mulling over their economic development strategies for the next phase. Taiwan's financial establishment is also facing a phase of structural re-adjustment. The internationalization of finance is not limited to liberalizing capital flows.
More importantly, if the financial industry -- a crucial service industry -- has no export capability in a time when industries are gradually moving toward the service sector, then the fluctuations in individual sectors will create higher risks of ruffling the entire economy, thereby shackling the country's economic growth.
Financial institutions should work hard to seek international cooperation in order to upgrade the nation's financial services. Foreign financial institutions coming to do business in Taiwan offer an opportunity for the nation's economic development, as do the international operations and management capabilities of local financial institutions.
Even though foreign financial institutions may pose a short-term threat to some local institutions, we can upgrade the internationalization capacities of our financial industries by utilizing the business know-how, talent, marketing channels and innovative financial products introduced by these foreign institutions.
The government has allowed a major local financial institution to cooperate with a heavyweight foreign institution, but the policy has not generated any substantial effect. And the policy is still hamstrung by a legislative resolution.
I believe there are two ways to resolve the obstacles posed by legislative bodies to financial institutions seeking international cooperation.
First, the privatization of state-owned enterprises and the release of government-owned stocks should not be shackled by the requirement to draw up a budget in advance. This will give more flexibility and vitality to the work of releasing such stocks. The sales process should be determined by the timing and market capacity.
There should be no "appended resolutions" that increase the
difficulty of stock release. Article 13 of the Public Enterprises Privatization Act (公營事業轉移民營化條例) has long provided a legal basis for government agencies in charge of state-owned businesses to, when necessary, be freed from the requirement to draw up budgets before releasing stocks. The agencies can do so while privatizing businesses in accordance with Article 6 in order to coordinate with economic policy needs and the market situation, as long as they report the matter to the Executive Yuan for approval.
Second, more effective methods should be used at higher levels to seek consensus in the future, in the form of partisan negotiations or coordination between the executive and legislative branches.
As the global economy gradually recovers, opportunities for international cooperation will increase drastically. I hope the legislature will remove the constraints on privatization and the release of government stocks as soon as possible, so that the government agencies and business leaders can seek international cooperation.
I also hope that government-owned financial institutions will seek international cooperation in order to deepen and broaden the ability of Taiwan's financial industry to internationalize.
Tracy Lu is a deputy researcher at the Democratic Progressive Party's Policy Research and Coordinating Committee.
Translated by Francis Huang
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