Taiwanese stocks surged Thursday after the island’s government said it will allow Chinese institutional investors to buy into its stock market for the first time since the two sides split amid civil war 60 years ago.
The decision announced late Wednesday is a major milestone in Taiwan’s rapidly developing economic ties with China and the first step in a wide-ranging financial cooperation program it launched with the mainland just last weekend.
Starting next week, mainland institutional investors will be able to apply to buy Taiwanese shares as long as the accumulated stock does not exceed 10 percent of a listed firm’s total share value, the Financial Supervisory Commission said.
Taiwan’s benchmark stock index surged 6.7 percent to 5,992.57 — its biggest one-day gain in nearly 18 years — amid hopes that the decision will lead to investment from the Chinese mainland.
State-owned China Mobile Ltd. said it agreed Wednesday to buy 12 percent of Taiwan’s Far EasTone Telecommunications Co. for 17.8 billion New Taiwan dollars ($529 million), though the deal requires Taiwanese government approval. Guidelines for Chinese companies interested in buying Taiwanese companies are likely to be announced in late May or early June, and those limits could go as high as 20 percent of total share value.
The regulating agency said Taiwan will continue to relax its control on Chinese investment “step by step” to eventually include futures trading.
“We hope the move can increase the market’s dynamics and … foster the prosperous development of our financial services industry,” the agency said in a statement.
On Sunday, envoys from the two sides signed a financial cooperation agreement in Nanjing, China, that paves the way for the two sides to open banks and other financial service institutions in the other’s territory.
Taiwan has long banned such arrangements, fearing they would allow Beijing to gain control of its economy. But President Ma Ying-jeou has pushed aggressively for closer economic ties since he took office last May, stressing they are crucial for Taiwan’s continued economic integration in the region.
However, an official with Taiwan’s Investment Commission said the telecom industry will not be among the sectors immediately open to Chinese investment, casting doubt on the China Mobile deal.
In making the announcement, Deputy Executive Secretary Ching Ming-pin said the Taiwanese firm will not be sanctioned by the government because the buyout has not yet taken place.
Far EasTone’s Chairman Douglas Hsu said the partnership will provide his firm with “a very strong platform to grow” by prying into China’s vast market. He said it would allow the company to sell its equipment and services on the mainland. Its shares closed up the daily limit of 7 percent to NT$37.65.
Six decades after their split, the mainland continues to view Taiwan as part of its territory, to be brought back into the fold by persuasion if possible, by force if necessary.
But in his 11 months in office, Ma has moved to reduce tensions between the sides, particularly on the economic front. Major breakthroughs include the initiation of regular direct air and maritime service across the 100-mile- (160-kilometer-)wide Taiwan Strait and a liberalization of restrictions on Taiwanese investment on the mainland.
After getting pummeled last year amid the global financial crisis, Taiwan’s stock market has rebounded strongly this year, partly because of its planned trade liberalization with the mainland. The benchmark index is up 41 percent since its low point in late January.
“Taiwan’s risk factor as a flash point has dropped significantly with its improved ties with the mainland,” said Liang Chi-yuan, an economist at Taipei’s prestigious Academia Sinica. “The mainlanders would be hesitant about launching a war as their investment increases here.”
