Taiwan’s Financial Sector Reform: A Long Overdue Change

In a significant move towards financial liberalization, Taiwan’s government has announced plans to overhaul the country’s heavily regulated financial sector.

Current Challenges

According to recent statistics, Taiwan’s financial system is dominated by state-controlled institutions, with a staggering 1.29 trillion Taiwanese dollars (approximately $42 billion USD) in assets held by just six major holding companies controlled by the Kuomintang party.

• The current regulatory environment has been criticized for stifling growth and innovation.
• Small and medium-sized businesses find it difficult to access funding from traditional sources.

Government Measures

In response, the government has introduced a range of measures aimed at increasing transparency and preventing monopoly activity in the financial sector:

• Preventive interventions:
  • Reserve requirements
  • Equity ratios
  • Deposit rates
  • Auditing and disclosure of information
  • Measures against insider trading
• Positive interventions:
  • Restrictions on new financial institutions and products
  • Regulated prices of financial services
  • Strategic financial policies aimed at promoting economic development

Criticisms and Challenges

However, critics argue that these measures have been inefficient and have hampered growth in the past.

• Many small and medium-sized businesses have been forced to seek alternative sources of funding, often at higher interest rates.
• The government’s focus on state-controlled institutions has led to a lack of competition and innovation in the sector.

Path Forward

In a bid to address these issues, Taiwan’s government has announced plans to liberalize its financial policy, allowing for greater competition and innovation in the sector.

• “We recognize that our financial system needs to be more open and competitive if we are to achieve sustainable economic growth,” said a senior official from the Ministry of Finance.
• The reforms aim to increase transparency and accountability within the financial sector, while also promoting access to funding for small and medium-sized businesses.

Timeline

The government has set a target date of 2025 for the completion of the financial reforms, with a focus on implementing new regulations and increasing transparency in the sector.

Conclusion

While some challenges remain, the move towards financial liberalization is seen as a major step forward for Taiwan’s economy.

Sources:

• Central Bank of China
• Statistics of Important Business of Financial Institutions (Taipei, 1990, 1995)
• Central Bank of China, Financial Statistics Monthly (March 1997)