Legislator Lu Hsiu-yen's Public Interest Speech at the "Hong Chun-pei Culture and Education Foundation"

(Taiwan Business News) The public is paying close attention to the cross-strait service trade agreement, and the financial industry is one of the sectors being opened up. On May 10, the Hong Chun-pei Culture and Education Foundation invited Legislator Lu Hsiu-yen of the Legislative Yuan to speak on "Financial Development for the Benefit of the Nation and the People." Legislator Lu shared her insights based on her many years of experience and background as a legislator focusing on fiscal and financial development, greatly benefiting the audience.

Financial cooperation is a key focus of future cross-strait development, especially at a time when the financial industries on both sides are undergoing structural transformation. Taiwan's financial industry has abundant practical experience and mature financial technology, but it operates in an environment of market saturation and excessive competition. Practitioners must expand their market operations outward to improve the financial sector's health.

On the other hand, the mainland currently has a high proportion of indirect finance, and credit control problems at financial institutions are serious. Expanding the scope of direct finance is the future direction, and under pressure from international opening, the local financial industry must enhance its talent, efficiency, and product innovation capabilities. The financial market urgently needs soft power to assist with upgrading and transformation.

Taiwan possesses the technology, talent, and experience that the mainland needs, while the mainland possesses the market foundation that Taiwan needs. This complementary relationship will drive financial integration between the two sides, and in the future, bilateral cooperation is expected to become even closer.

Legislator Lu Hsiu-yen began with Taiwan's financial environment and related economic issues. She stated that Taiwan's economic growth has slowed in recent years and exports have been insufficient, largely due to poor fundamentals or structural problems. First, export products are concentrated, with over 50% concentrated in industries such as electronics, plastics, chemicals, and optics. Moreover, more than 50% of enterprises adopt the "Taiwan takes orders, China exports" model, with a high proportion of intermediate goods, making them highly susceptible to economic fluctuations. For example, the European debt crisis caused a decline in the European and American laptop markets, and naturally Taiwan's component export market suffered as well. Currently, with the mainland's economy taking off, many mid- and upstream products can be produced domestically. Facing China's price-cutting competition, Taiwan naturally has little competitive advantage under these conditions.

In addition, most Taiwanese businesses are in OEM industries with low added value and low gross margins, which means they can only seek low labor costs in the mainland or Southeast Asia. For Taiwan, this creates no real benefit in terms of job creation. In terms of global economic and trade cooperation, the global economy is currently undergoing a major reshuffle, and seeking cooperation through global bilateral and regional agreements has become a trend. Taiwan's markets are not sufficiently diversified, and its efficiency in participating in multilateral economic negotiations is too slow (unlike South Korea's situation). China, Japan, and South Korea are all negotiating FTAs. Taiwan's slow efficiency may lead to a crisis of marginalization. The earlier failure to join ASEAN's RCEP has put Taiwan in a disadvantaged position. The service trade issue, signing FTAs, and joining the TPP may be the time for the people to make a choice.

In recent years, cross-strait tangible economic and trade exchanges have become increasingly close, and related financial services need to be matched accordingly. The mainland is currently undergoing financial reform. Lu Hsiu-yen believes that Taiwan's financial services have their advantages, and in many aspects Taiwan is still more advanced than the mainland, such as in credit cards, wealth management, and fund management. China Merchants Bank is one example. It grew from a originally small bank into the bank with the largest credit card issuance volume in the mainland, and also the most profitable. Although its scale is far smaller than the mainland's four major banks (Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China, and Bank of China), it can rank first in credit cards. The head of their credit card department is Taiwanese, and the credit card information system and marketing strategies were all planned and built with Taiwanese help, clearly showing that Taiwan's financial institutions still have niches in many areas.

The two sides should broaden their scope and raise their vision, bringing out their respective strengths to cooperate, with the goal of accelerating the enhancement of both sides' financial industries' international competitiveness. This is the original meaning of cross-strait exchange, rather than finding each other's weaknesses and making the other side's development difficult. Taiwan currently has seven bank representative offices. Upgrading them to branches should not have much impact on the mainland. The mainland can be more generous and share the market with Taiwan. Conversely, what the mainland truly needs from Taiwan is Taiwan's experience and talent.

For example, many things that have happened in the mainland have already happened in Taiwan before, or certain structures are very similar, such as stock market lotteries and retail-investor-dominated stock markets, and investment mentalities are also very similar. This commonality comes from the "cultural similarity" that nurtured these groups of people. The paths that Taiwan has tested, experimented with, and traveled should be extremely valuable reference information for the mainland.

Not only can past experience serve as a reference, but in the future Taiwan will also have experience in developing new financial businesses earlier than the mainland, which can be shared. Beyond business, there is also the establishment of financial systems, such as the SME credit guarantee mechanism, or the central deposit insurance system that the mainland is currently planning. Therefore, both sides should take a long-term view, broaden their scope, bring out their respective strengths, and cooperate in good faith to enhance international competitiveness.

Taiwan's financial industry is a key industry for the next wave, but the fact is that it lacks international competitiveness. It is impossible that simply encouraging them to go to financial centers like New York and London will make them stronger. "For the financial industry to thrive, it needs market cultivation. And the mainland market provides Taiwan's financial industry with the opportunity to gradually grow." The two sides share the same language and culture, and have a better grasp of the social structure than other foreign investors, which is very important for the development of the financial services industry.

After all, the mainland's financial industry started relatively late. Therefore, the products the mainland is just now opening up are mostly products that Taiwan has developed very maturely, such as credit cards. For these products that Taiwan has already developed maturely, Taiwanese banks are competitive in the mainland market. Only with competitiveness is there an opportunity to make money, and only then is there the ability to pursue further development.

Afterward, Taiwan's financial industry can follow the mainland's gradual opening of financial businesses and steadily build up its own competitiveness step by step. Therefore, Legislator Lu Hsiu-yen believes that the mainland is an opportunity for Taiwan's financial industry to catch up with advanced countries in Europe and America.

Legislator Lu Hsiu-yen Profile

Legislator Lu Hsiu-yen holds a bachelor's degree from the Department of Land Economics at National Chengchi University and a master's degree from the Graduate Institute of International Affairs and Strategic Studies at Tamkang University. She has served as a CTS reporter, CTS Central Taiwan News Director and Provincial Government Correspondent, a member of the 10th Provincial Assembly, a member of the 4th, 5th, 6th, and 7th Legislative Yuan, a member of the Kuomintang Central Standing Committee, and deputy captain of the Taichung City Loving Mothers Brigade. She is currently a member of the 8th Legislative Yuan. She was awarded the Best Interview Award at the 1990 Golden Bell Awards for Television.

Hong Chun-pei Culture and Education Foundation 2014 Public Interest Speech