Competitive Strategies for the Taiwanese Financial Market in a Global Market By Shyan Yuan Lee Commissioner, FSC Professor, Dept. of Finance, NTU

Outline:  What role should the Taiwanese financial market play in a global market?  How should Taiwan position our financial market?  What market niche should we take?  What are the policies we need to change?  With what attitude should we take to develop the financial industry?

ＩＦＣ London, Singapore & HK without Particular Domestic Connection Characterize the Taiwanese financial market New York & Tokyo with Great Presence of Domestic Economy

How did London, Hong Kong, and Singapore become a key financial center despite not being backed by a massive economy?  Strategically using the economic strength of their neighbors  Transforming that into their own potential

What market niche should we take?  The most appropriate niche for Taiwan financial markets is to develop Taiwan as the fund raising center and the asset management center.  There are two main drivers to fuel the growth of these two centers, domestic growth in Taiwan, and the rapid growth of Taiwan’s neighbors.

The economic growth and financial strength of Taiwan GDP growth rate at 3-5% per annum US$720 billion in total NTD deposits US$560 billion in total loans Foreign Reserves at 260 billion USD deposits of OBU at 20 billion USD deposits of DBU at 60 billion Taiwanese deposits abroad in total US$ billion Pension saving is anticipated to collect US$ billion per annum. Twenty years from now the future prospective fund size will be US$1,215 billion. Sales of structured products have totaled US$40 billion The potential of asset securitization market

ＩＦＣ 1.Open Economy 2.Credible Legal & Judicial Systems 3.Free Entry of International Players 4.Knowledgeable & Skilled Labor 5.Top Banks & Securities Houses 6.Politically Independent Market Supervision 7.Efficient Transportation & Communication 8.Non-Restrictive Tax Regime 9.Stable Currency 10. Connection to Economic Hinterlands Features of the International Financial Center

Four areas need substantial improvement  Top Banks and Securities Houses The continued consolidation of domestic financial institutions to create National Champions and Regional Champions is the correct path to take.  Non-Restrictive Tax Regime Major revisions to the tax code for the financial industry The withholding tax issue The tax on overseas investments of individuals

Four areas need substantial improvement  Stable Currency & Free Capital Mobility The global FX trading volume is: New York(19.2%), Tokyo(8.3%), London(31.3%), Hong Kong(4.2%), Singapore(5.2%), Taiwan(0.3%).  Connections to Economic Hinterlands The financial industry has not build up connections to economic hinterlands. Building up connections to economic hinterlands is strategically vital for us to become more competitive.

International Financial Center Growth of efficient and high-value-added financial service sector Little needs for plant and equipment High invisible infrastructure costs e.g. legislation, taxation, etc. Overwhelming foreign players – “Wimbledon Effect” Pros & Cons to be an IFC Upside Downside

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