Yuan Clearing MOU signed....

Dollar elbowed aside, reports the CNA:

The MOU, signed between the central banks of Taiwan and China, will pay the way to allow direct exchanges between the Taiwan dollar and the Chinese yuan, so that businessmen will no longer have to use the U.S. dollar as a medium for currency exchanges between the two sides, said Yeh Hui-te, deputy chairman of the All-China Federation of Taiwan Compatriots.

The banks "can help us save time and losses incurred from currency exchanges, so this is definitely a good thing," said Yeh.

However, some of the businessmen voiced concerns such as whether a daily currency exchange limit will be in place. In Hong Kong, the daily currency exchange ceiling is 20,000 Chinese yuan (US$3,139.80).

Taiwan's central bank governor, Perng Fai-nan, told reporters earlier in the day that the MOU is just a starting point for cross-strait currency settlement and that further negotiations will be required to iron out the details of the mechanism.

As for when Taiwan will begin to introduce yuan-denominated financial products, Perng said this will depend on how large the yuan market in Taiwan becomes and also on the types of products released by the banking industry.

One fork of China's Yuan strategy is clearly to reduce the role of the dollar. In simple terms, Bloomberg notes:

After the deal becomes effective in about two months, Taiwanese banks will be able to take yuan deposits and convert yuan into the New Taiwan dollar. The conversion will allow Taiwanese investors on the mainland to cut foreign exchange costs by skipping the current process of first converting their yuan earnings into U.S. dollars.

Another Bloomberg piece says....

China has been expanding its currency relations with trade partners to promote greater use of the yuan in global trade and investment. Nations including Singapore, Japan, and Thailand have signed similar deals with the world’s second-biggest economy as part of their efforts to reduce reliance on the dollar. Exports account for more than two-thirds of Taiwan’s economy and some 30 percent of shipments are bound for China.

“It’s a good development as there’s huge demand for yuan in Taiwan,” said Penny Chen, who helps oversee $160 million in yuan assets as a fund manager at Manulife Asset Management Co. in Taipei. “Taiwan’s exporters and small-to-medium enterprises will be able to reduce transaction costs.”

Taiwan meanwhile wants into the lucrative Yuan clearing business, a business also being pursued by London and other financial centers, and currently a big business in Hong Kong, business Taiwan wants to poach. Bloomberg also identified another factor in the deal:

Taiwan also hopes to attract wealthy Chinese to park their yuan funds on the island, said Norman Yin, professor of finance at Taiwan's National Chengchi University, noting that China has seen an increasing amount of capital outflow despite its foreign exchange control.

"Compared with Hong Kong, Taiwan has more advantage in the wealth management business because its transactions do not come under China's watchful eyes," Yin said.

Yes! We can take those corrupt Yuan gains and hold them as deposits outside China's control here in Taiwan. Wheee! And of course, a key beneficiary will be cross-strait organized crime, one of the major beneficiaries of cross-strait rapproachment, which will be able to repatriate its gains as Yuan holdings to Taiwan banks, as "foreign" cash holdings whose interest will be capital gains and thus, tax-free. Am I ever in the wrong business....

As the several articles note, this is only an MOU and the details need to be worked out. So all this celebration may come to nothing once everyone sits down with their own agenda....
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Daily Links:

• Wendell Minnick at DefenseNews reports on a report that Taiwan is resisting Chinese assimilation. Note the details about Taiwan's ammunition status.
• Great guide to Kaohsiung
• A Hungry Girl eats Singapore/French

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[Taiwan] Don't miss the comments below! And check out my blog and its sidebars for events, links to previous posts and picture posts, and scores of links to other Taiwan blogs and forums! Delenda est, baby.

Thursday Short Shorts

China Reform Monitor passed this Vietnamese newspaper link around:

Several experts said China’s claim over 80 percent of the East Sea was based on little of substance. They said a map submitted by China to the UN to stake its claim had only complicated the situation.

Professor Ramses Amer of Stockholm University in Sweden said that no one understood what that map – which shows a dashed line around the country’s claim to 80 percent of the sea – was trying to express, including many Chinese scholars.

Nazery Khalid, a Senior Research Fellow at the Maritime Institute of Malaysia's Center for Economics Studies & Ocean Industries, said the map was unfounded and had ignited controversy.

Tran Cong Truc, former head of Vietnam’s Government Border Committee, said Chinese researchers themselves were unsure about the map’s legitimacy.

Rodolfo Severino, head of the ASEAN Studies Center Institute of Southeast Asia Studies, said there were no co-ordinates attached to the dashes on the line and China had never explained their meaning.

It reminds one of the several times previously China has displayed someone else's territory on its map, as if attempting a sneak grab of it. For example, a decade ago the Indonesian Natunas Islands suddenly appeared on Chinese maps.

SCMP reported that a PLA singer has landed in Taiwan and is touring the island:

Chen Sisi , the first PLA soldier to land in Taiwan, will stage her historic performance today at the National Dr Sun Yat-sen Memorial Hall in Taipei after arriving in Taiwan on Tuesday.

But Taiwan's opposition lawmakers urged the government yesterday to ban her performance, citing security concerns.

Apparently she's a colonel in the Song and Dance Troupe of the PLA Second Artillery.

Speaking of hot, how about them money inflows? Taiwan is being flooded with flows of speculative cash from foreign investors. The NT is likely set to appreciate, at least in the short term.

Lin reiterated the central bank does not welcome speculative trading in the forex market. Several foreign investors had remitted substantial funds into Taiwan but failed to invest in stocks as stated in their declaration documents. The central bank has referred the names of these investors to the Financial Supervisory Commission for investigation.

Under instructions from CBC Gov. Perng Fai-nan, the forex department held a news conference Jan. 4 and provided journalists with reports from Nobel economics laureate Joseph Stiglitz and the United Nations.

The reports pointed out risks of asset bubbles in the event of continued international "hot money." The central bank's moves suggest it does not rule out the possibility of tightening management over capital accounts to prevent a scenario like the Asian financial storm of 1997 or the global financial tsunami of 2008.

Meanwhile, emerging markets should be capable of controlling asset inflows in order to refrain from creating economic bubbles.

Recent influx of hot money has produced a major impact on the forex market, Lin said.

Many countries such as Brazil, Russia and Indonesia have indicated plans to take measures against hot money, the director-general added. Brazil, for instance, plans taxation of 2 percent against foreign investors.

An economist pointed out that one reason for the inflows is that it is traditional for businessmen in Taiwan to clean up their debts before Lunar New Year begins. This increases the demand for NT dollars, driving up their value. Marc Chandler says:

To be sure foreign investors have been buying Taiwanese shares. Through today, foreign investors have been net buyers of Taiwanese shares for 11 consecutive days. Last year, foreign investors bought an estimated $15.6 bln of Taiwanese shares, the most in three years. Taiwan’s Taiex index rose almost 75% over the past 12 months and the key index now stands at its highest level since mid-2008.

Recall that in mid-Nov 2009 Taiwan barred foreign investors from using time deposits to park funds. Today’s move is aimed at the same thing–deterring speculation in the Taiwanese dollar. The central bank indicated yesterday that recent inflows, which it monitors closely, exceeded the value of equity purchases by foreign investors.

These type of measures can be effective for a short-term and it would not be surprising to see the US dollar recover some recent ground lost against the Taiwanese dollar. However, Taiwan’s increasing economic ties to China, including allowing mainland investors to buy Taiwanese shares and the general global economic recovery bodes well for Taiwan assets and currency.

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Daily Links:

• Our Good Cooperation Partner passes new law giving Chinese high tech firms preference over foreign firms in bidding. But if only Taiwan moves closer to China, China will reciprocate.....
• Global Post: Taiwan's Love Motels Step Up Their Game
• Taiwan scientist discovers new strawberry crab.

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[Taiwan] Don't miss the comments below! And check out my blog and its sidebars for events, links to previous posts and picture posts, and scores of links to other Taiwan blogs and forums!