Taiwan said Friday it would allow local banks to buy government and corporate bonds issued in China in a bid to help them boost their investment returns.
The Financial Supervisory Commission, the island’s top industry regulator, said in a statement the new rules will enable the overseas units of local banks to invest in Chinese debt.
Commission officials said the move is expected to help improve local banks’ investment yields as Chinese yuan bonds have an average three percent return annually.
By comparison, the annual returns on Taiwanese government and corporate bonds are typically in the range between one and two percent.
Taiwan has been relaxing rules on local banks investing in China after the two sides signed a package of agreements on better cooperation in banking, insurance and securities, which went into effect last year.
Six Taiwanese banks currently have branches in China while four others have opened up liaison offices.
China still considers Taiwan part of its territory, even though the island has governed itself since 1949 at the end of a civil war.
Ties have improved markedly since Ma Ying-jeou became Taiwan’s president in 2008 on a China-friendly platform.
Taiwan’s Financial Supervisory Commission says it will further relax investment restrictions and allow local banks to buy government and corporate bonds in China.
Commission official Chiu Shu-chen said late Thursday the move will help improve local banks’ earnings. He said some Chinese bonds have an interest rate of about 3 percent. Taiwan bond interest rates hover below 2 percent.
Under a partial free trade deal signed last year by Taiwan and China, several local banks have set up subsidiaries in China, but are barred from engaging in deals in the Chinese currency in the first two years of operation.
But officials said their overseas branches are not regulated by the Chinese and can soon buy the Chinese bonds.
Taiwan and China split amid civil war in 1949.