China and Taiwan have agreed a landmark trade deal that expands the role shipping lines as well as charter and cargo flights can play in bilateral trade between the two markets.

Analysts say liberalised capital flows could be next on the agenda, which would open up the prospect for letter of credit (L/C) business between China and Taiwan.

Deal controversy

During a controversial recent visit to Taiwan by senior Chinese officials, China and Taiwan have signed a pact to open trade and transport links.

But the signing provoked clashes between police and protestors who say Taiwan's president Ma Ying-jeou has sold out to Beijing by signing the agreements.

Advocates of the deal say it will improve bilateral trade thereby partially offsetting the negative impacts of the global downturn.

Hong Kong impact

The agreement could however have a negative impact on Hong Kong.

All L/Cs currently have to be issued from Hong Kong for trades between the Chinese mainland and Taiwan while Hong Kong-based trade financiers currently raise collateral for Taiwanese clients doing business with China too.

This scenario would no doubt change if capital flows between the two sides were liberalised.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.