UPDATE 1-Taiwan, China ink financial pact, to take effect soon

By Faith Hung TAIPEI, Nov 16 (Reuters) - Taiwan has signed a financial service pact with China, the Taiwan government said on Monday, allowing its banks to tap China's massive market and paving the way for banks in both to invest in each other. The much-anticipated pact, or memorandum of understanding (MOU), will mainly cover cross-border financial supervision and is expected to take effect within two months from now, Taiwan's Financial Supervisory Commission said in a statement. Taiwan also aims to complete regulatory amendments to allow Chinese banks to invest in the island's lenders, the commission's chairman Sean Chen told a news conference, which analysts said will help boost Taiwan's financial shares. The issue of most concern to investors -- details for Taiwanese and Chinese financial firms investing in each other -- will be discussed in a free trade pact, or the so-called economic cooperation framework agreement (ECFA). Taiwan aims to sign the ECFA early in 2010, the government has said. Taiwan and China have agreed to open their financial markets to each other as part of easing ties between the formal political rivals since Taiwan President Ma Ying-jeou took office last year. For details of the agreement in Chinese, please click http://www.fscey.gov.tw/Layout/main_ch/News_NewsContent.aspx?NewsID=38425&path=1736&LanguageType=1 Trade relations across the Taiwan strait have thawed following a decades-long freeze, with bilateral deals promoting tourism and shipping links already concluded. FURTHER EASING OF TIES Taiwan's banks will be late comers to China's booming market, which is dominated by powerful local and global players such as Bank of China and HSBC . While the island's lenders such as Fubon and Chinatrust are strong in consumer banking businesses such as credit cards and wealth management, they won't be able to compete head-to-head with China's biggest players in the near term, analysts have said. "The signing of the MOU is just the beginning of financial cooperation on both sides," said Chu Yen-min, senior vice president at Taiwan's KGI Securities. "We're expecting more opening in the financial sector when both parties sign the ECFA agreement," Chu said. Taiwan's banking and insurance sub-index has jumped 55 percent so far this year on expectations the MOU will help banks establish a foothold in the Chinese market. The main index has climbed 70 percent during the same period. (Editing by Joseph Chaney and Lee Chyen Yee/Ruth Pitchford) (([e-mail]; [phone]; Reuters Messaging: [e-mail])) Keywords: TAIWAN CHINA/MOU (If you have a query or comment on this story, send an email to [e-mail]) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved.

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