Banks in mainland China and Taiwan are embarked on a spate of relationship building after the financial authorities on both sides of the Taiwan Straits granted banks in both countries permission to open direct remittance links.

The move heralds what is expected to be a significant flow of letters of credit (L/Cs) between the two countries on the back of the expected increase in economic exchanges between Taiwan and China.

Costs

Taiwanese banks and their clients with investments in mainland China have pressed hard for direct remittance links, which will almost certainly result in lower operational costs for investors and banks.

Cost reduction of between US$15-25 per remittance are expected while payment times should fall from about two days to the same day.

Benefits

The moves will benefit Taiwanese investors most. They have made investments estimated at US$60 billion in over 40,000 businesses in mainland China. Without direct remittance links they had to funnel remittances and account settlements through intermediaries, typically banks in the US or Hong Kong.

The People's Bank of China (PBOC-central bank) has approved but not yet officially announced the Chinese authorities' permission for the opening of direct remittance links.

Courting

Several banks on the mainland have been courting Taiwanese partners. The Industrial and Commercial Bank of China (ICBC) said it had signed up 22 Taiwanese and 12 foreign banks operating in Taiwan. Thus ICBC is already able to handle remittances, L/Cs and settlements across the Straits.

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