Daniel Slotta
Research expert covering Greater China
Financial industry in Taiwan - statistics & facts
The small island at the contact point of the East and South China Sea has a population of 17.t million people, but Taiwan’s financial punching power is dwarfed by the much smaller regions of Hong Kong and Singapore. The area never capitalized on its societal and geographical proximity to mainland China in the same way as the others have done. Instead, it maintained a more direct relationship with its geographical neighbor . However, in the advent of increasing cross-strait tensions, not only governments and businesses but also the region’s financial system are in a realignment process.
When COVID-19 hit the world in full force, Taiwan’s banks had to change their modus operandi at home and abroad. Domestically, banks had to improve digital banking competencies, such as digital payments to be still able to provide socially distanced services and other innovations. In addition to that, as a result of closed borders, banks had to turn their attention to the local market instead relying on mainland China. Whereas the COVID-19 pandemic constituted a comparatively small ripple in the industry, the broader geopolitical shift requires Taiwan’s financial industry to undergo long-term transformation and reorientation.
The reassessment of partnerships with the People’s Republic of China is a broader trend in Taiwanese society and its economy. In decades past, Taiwan and mainland China maintained close economic and societal ties and cooperated despite their political and ideological differences. After all, it was a mutually beneficial relationship until Beijing’s rhetoric turned more hostile, and the United States began to flex its political and economic muscle. However, the tides have turned, and according to a recent survey, almost 80 percent of enterprises think it is better to reduce their dependence on mainland China. After all, for most businesses and financial institutions, the political environment is another vector for strategic planning.
Out of a rut
The financial sector in Taiwan was small and in led by large domestic banks with little air to breathe for other institutions or innovation. In comparison with the APAC region, Taipei as a financial center did not even make the top ten. Almost two-thirds of Taiwan’s financial industry was composed of domestic banks that were not known for driving innovation . The remaining third was mostly made of credit associations, and only just over 500 institutions covered the remaining financial services sector.When COVID-19 hit the world in full force, Taiwan’s banks had to change their modus operandi at home and abroad. Domestically, banks had to improve digital banking competencies, such as digital payments to be still able to provide socially distanced services and other innovations. In addition to that, as a result of closed borders, banks had to turn their attention to the local market instead relying on mainland China. Whereas the COVID-19 pandemic constituted a comparatively small ripple in the industry, the broader geopolitical shift requires Taiwan’s financial industry to undergo long-term transformation and reorientation.
Reevaluating partnerships
As a response to the current political and economic climate, the region’s financial industry has entered a transition phase. After tumultuous years, Taiwan’s financial institutions have shown clear signs of reducing their exposure to mainland China. Across all sectors, financial actors have changed their approach to the cross-strait relationship. Loans to mainland Chinese businesses have decreased, and so have investments and interbank use. In total, banking industry loans to mainland Chinese entities decreased by 16 percent within one year . In addition to that, the Taiwanese government ordered state-owned banks to reduce their relationship with mainland Chinese entities.The reassessment of partnerships with the People’s Republic of China is a broader trend in Taiwanese society and its economy. In decades past, Taiwan and mainland China maintained close economic and societal ties and cooperated despite their political and ideological differences. After all, it was a mutually beneficial relationship until Beijing’s rhetoric turned more hostile, and the United States began to flex its political and economic muscle. However, the tides have turned, and according to a recent survey, almost 80 percent of enterprises think it is better to reduce their dependence on mainland China. After all, for most businesses and financial institutions, the political environment is another vector for strategic planning.
