Cautious Taiwan Banks Reduce Exposure to China to Level Lowest in Over a Decade

Kos Temenes
By Kos Temenes
May 11, 2023Businessshare
Cautious Taiwan Banks Reduce Exposure to China to Level Lowest in Over a Decade
A bank clerk counts 1,000 new Taiwan dollar banknotes in Taipei on Dec. 9, 2011. (Sam Yeh/AFP via Getty Images)

Taiwanese banks have greatly reduced their exposure to China in light of rising tensions between the nations, with the level of exposure now at its lowest level in at least a decade.

Banks registered in Taiwan slashed total lending to NT$1.1 trillion ($34.6 billion) as of the end of March, including investments and inter-bank transactions to China. Figures from Taiwan’s Financial Supervisory Commission (FSC) released on May 9 show an 18 percent drop from the same period last year, according to Bloomberg.

Moreover, data from Taiwan’s Financial Supervisory Commission show that exposure has fallen for eight consecutive quarters—dropping to the lowest level since 2013, when records began. The area most affected by the drop was investments, which declined over 28 percent in the last year.

Speaking at a briefing on May 9, the FSC’s Banking Bureau deputy chief Tong Chen-chang said that banks’ risk-management committees are focusing on transforming elements of their exposure in terms of country and industry.

In addition, many banks’ interactions with mainland China were disrupted for around three years starting in 2020, due to severed travel links and restrictions caused by the COVID-19 pandemic.

In recent years, the process of expansion into China by Taiwanese banks—commonly referred to in Taiwan as the “Go West” strategy—has seen a strong reversal. According to Tong, the most recent expansion into China was in 2018, when Shanghai Commercial Bank opened a new branch in Wuxi.

Other banks, such the Land Bank of Taiwan, Cathay United Bank Co., and the Bank of Taiwan have yet to open additional branches in China—despite previously having been given permission to do so.

Other industries have also been affected. According to Taiwan’s Investment Commission, new Taiwanese investments across the Strait have declined by over 10 percent in the first quarter alone, with manufacturers at the forefront.

Taiwan’s investment in other economies, in contrast, has been booming. According to government data, Taiwanese investment overseas has seen explosive growth of nearly 250 percent to almost $7 billion in the first quarter, as reported by Bloomberg.

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