Charting the Evolution of China-Taiwan Cross-Strait Financial Services in a Sea of Digital Disruption

Written by  Tuesday, 09 October 2018 11:14

     

     Every morning when I woke up in my apartment on the campus of National Tsinghua University in Hsinchu, I was greeted by the sound of singing birds. I lived in a faculty residence inside the lush NTHU campus with its rivers, lakes and rolling hills, sheltered from Hsinchu’s urban bustle and noise. I got around the campus and nearby shops in Hsinchu on a bicycle that a faculty colleague lent to me. Temporarily disencumbered of my family, my house in Seattle and my obligations as a University of Washington faculty member, I felt like an undergraduate again. The time I spent in 1985-86 studying Chinese in Taiwan had been one of the happiest in my life. Even though so many things about my life had changed in the thirty years between my return to Taiwan, my year of Fulbright research was also one of my happiest. I was grateful every day for the privilege of being able to step away from my life in America and to step back into life in Taiwan.

I received a Cross-Strait Studies Fulbright research grant to study the integration of financial services in Greater China. For the last twenty years, my teaching and research have focused on the impact of globalization and technological innovation on commercial law. In 2012, Taiwan and China had established a “cross-strait currency clearing mechanism” to permit direct New Taiwan Dollar-Renminbi foreign exchange transactions. Behind the façade of innovation and technological integration, I suspected that it might be possible to detect persistent differences in business and legal culture in the implementation of the cross-strait currency clearing mechanism on both sides of the straits.

 

     My host at National Tsing Hua University (NTHU) was Professor Shin-yi Peng, Associate Dean of NTHU College of Technology Management and a law professor at the Institute of Law for Science and Technology. The ILST law school is unique in its structure because its programs focus on the intersection of technological innovation and law.  Like US law schools but unlike other law schools in Taiwan, it accepts only graduate students, so many law students have a bachelor’s degree in a subject other than law. ILST was also a new institution: Professor Peng was one of the founding faculty members when it was launched in 2000 and later served as its director for many years. ILST’s efficiency amazed me; after I learned that I had been awarded the Fulbright in May 2016, Professor Peng somehow managed to get a proposal for a graduate seminar on “Regulation of Financial Technology” approved in time for me to teach it in the autumn. Several faculty colleagues at the ILST were very gracious with their time, meeting with me to discuss my research and share their own work with me. I’m optimistic that a few of those discussions will eventually blossom into co-authored publications or other forms of collaboration.

 

     At Professor Peng’s request, one of the law students helped me to get settled in. Roger lined up a faculty apartment for me before I arrived. He helped me get my phone turned on, showed me where the nearest shops were, where I could catch the campus bus to go up the steep hill to my class at ILST, and where I could eat on campus if I didn’t want to cook for myself. Roger went with me to the Costco in Hsinchu where I used my US Costco card to stock up on important commodities like aged Wisconsin cheddar cheese. He even took me to the hospital so I could get some medical tests done for my residence permit application.

 

     I enrolled in a Chinese class when I arrived at NTHU. To build upon their formal classes, NTHU offers to pair PhD students from the Chinese language and literature program with visiting faculty members for informal Chinese lessons. A student working on a PhD dissertation on Lu Xun became my tutor, stopping by my apartment a couple of times a week for private lessons. In my Friday morning Chinese class with students from Japan, South Korea, the Philippines, Thailand, Italy, America, and St. Vincent in the Caribbean, I was not only the oldest student, I was even older than the teacher. When it was my turn to make a presentation to the class, I played off our age difference and explained how traditional manual typewriters for Chinese worked. I remembered having seen them in the 1980s at my part-time law firm job as a student in Taiwan, so I used YouTube videos to show the other students how they worked.

 

     Starting from the first meeting of my “Regulation of Financial Technology” seminar, I made it clear that the focus of the course would be my ideas for my Fulbright research, so the syllabus would be evolving as my own thinking evolved. None of the students withdrew from the course after that disclosure, and the seminar was a joy to teach. The students repeatedly challenged me to rethink many of my assumptions about my research; I soon discovered that they were most likely to feel confused at precisely those points where I had not yet fully worked out my own thoughts. I was also fortunate to be able to recruit a couple of the students in the class to help me with my research.

 

     One advantage of having taught law in the US since 1989 is that many of my former students are now enjoying successful careers in Taiwan as academics and attorneys. It was a great pleasure to catch up with them and learn more about life in Taiwan as we discussed their challenges and opportunities.  By networking with my former students and other colleagues, I quickly grew to understand both the regulatory culture in financial markets in Taiwan today and the response of local banks to competitive pressures from global markets as well as from China. After a colleague at a bank explained to me that the creation of the cross-strait currency clearing mechanism merely involved accounting entries in the Bank of China branch in Taipei, I expanded the focus of my study to include the current state of cross-strait e-banking services.

 

     In addition to studying how the legal systems of the US and China are responding to the digital transformation of commerce and finance, I also study the responses of the European Union and India’s legal systems. I had studied the regulation of financial markets in Taiwan during the 1980s and 1990s but had lost touch with developments in Taiwan in recent years. When I compared the current regulatory framework and financial market conditions in Taiwan to those of other countries, I was surprised to find that Taiwan’s market most closely resembled Europe’s. Taiwan’s similarities to Europe came to my mind in many other contexts: when I saw the new train stations, the high speed rail, the public hospitals and experienced the high level of public safety generally, I was reminded more of Europe than the United States. Like their counterparts in Europe, many people I met in Taiwan were wondering how they would be able to sustain their standard of living in the face of relentless global competition.

 

     After my visit at NTHU ended, I spent a couple of weeks in Hong Kong to view progress toward the integration of e-banking services in Greater China from the perspective of the undisputed financial nerve center of the region. The third part of my cross-strait research grant was spent at Guanghua Law School, Zhejiang University in Hangzhou, China. Comparing the legal and business culture of each of the three parts of the Greater China market for financial services, it quickly becomes clear that any surface movement toward harmonization and convergence belies profound persistent differences. When I publish my research, I may use the Chinese saying, “Same bed, different dreams” (同床異夢) to capture the disconnect: while Taiwan is focused on making sure its financial markets are not swamped by the vast scale of the Chinese market, Hong Kong is focused on competing with Singapore and London to maintain its status as a global financial hub, and China is focused on projecting its authority in global markets with its Renminbi internationalization program.

 

     All the subject matter experts I meet emphasize the question of what to do about the spread of disruptive “FinTech” (i.e., financial technology) innovations. In Taiwan, there was widespread concern that the government was not doing enough to promote FinTech. In Hong Kong, I visited a FinTech accelerator full of startup companies and met the director of the new Hong Kong Monetary Authority “FinTech Facilitation Office.” Around the time I arrived in Hangzhou in February, The Economist magazine proclaimed that China was number one in the world for FinTech innovation following the blockbuster successes of Ant Financial, the company that was created when Alipay branched off from Alibaba in 2011. The cause for concern in Taiwan was obvious: Taiwan had neither a FinTech Facilitation Office nor a blockbuster disruptive FinTech innovator to match the prowess of Ant Financial. Despite this concern, some experts pointed out that as democracy in Taiwan has flourished, consumer protection has become a paramount concern of regulators. While the reluctance of Taiwan’s financial market regulators to promote FinTech as aggressively as some other countries might be attributable to a desire to protect local banks from “excessive” competition, I think it is more likely to reflect a clear understanding of what matters most to the general public in Taiwan.. Embracing FinTech might generate a few highly paid “knowledge economy” jobs for disruptive innovators, but only at the expense of a much larger number of jobs lost from the banks being disrupted. I therefore found it hard to fault the cautious wait-and-see approach Taiwan’s financial market regulators are taking toward FinTech developments.

 

     Over the years, I have spent a lot of time in Taiwan and in China, but before I received this Fulbright grant, I had never focused on cross-strait relations. The more I learned about cross-strait politics and the evolving framework for cross-strait financial transactions, the more I realized I still needed to learn. I was delighted when one of my University of Washington Law School PhD students recently joined the law school at National Chiao-Tung University in Hsinchu, right next door to NTHU. With the help of his dean, Luke was able to organize a course that we could co-teach together every autumn, making it possible for me to return to Taiwan every year. My study of the digital transformation of financial services in Taiwan and Greater China is just beginning.

 
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