The Types and Regions of Invested Chinese Banks

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0.271 in 2009 with its lowest of 0.013 in 2008. This was mainly due to the financial crisis in 2008, and Taiwanese banks overall tended to be conservative in business expansion in China. As cross-straits relations improved and the economy slowly recovered in 2009, the confidence of the expanding China banking market is regained, and thus the probability of intensity has reached its highest point.

We can also analyze the probability of intensity between pan-government-owned banks and private banks and find that the results are similar to those of the overall banks’; that is, the probability of intensity is at its lowest in 2008 and rises in 2009. However, the probability of intensity of pan-government-owned banks, 0.328, is relatively higher than private banks’ 0.189 in 2009, and 0.016 and 0.009 in 2008, respectively. It appears that the pan-government-owned banks generally take advantage of the motives and the terms of equity stakes acquisitions as compared to the private banks outside of non-objective reasons such as political issues and government shareholding constraints.

5.3.2 The Types and Regions of Invested Chinese Banks

Taking equity stake acquisitions as the strategy to enter into Chinese financial market, most Taiwanese banks have recently assessed the best timing and the types or regions of Chinese banks in accordance with the business development prospect, customers’ attribute, and competition tactics. In this subsection, we categorize the types of Chinese banks as state-owned, joint-stock commercial banks, city commercial banks, and rural cooperatives, in the five regions of Bohai and Beijing-Tianjin-Hebei Economic Rim, Yangtze River Delta, Western China Region, Haixi Economic Zone, and Pearl River Delta. We analyze the probability of intensity of overall, pan-government-owned, and private Taiwanese banks during the last five years as the reference of strategy in taking equity stake acquisition of Chinese banks in the near future.

Considering the type of invested Chinese banks, we find that the joint-stock commercial banks possess the highest probability of intensity, followed by then state-owned and city commercial banks and rural cooperatives, as shown in Table 13.

This illustrates the outcome that the Chinese bank with superior asset quality has a higher probability of intensity. This intensity decreased from 2005 continuously, reaching its lowest in 2008, but it rebounded significantly in 2009 at 0.304 for joint-stock commercial banks and 0.247 for state-owned and 0.147 for city commercial banks and rural cooperatives. Although the joint-stock commercial banks have higher probability of intensity than the other types of Chinese banks, most

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Taiwanese banks take into account the city commercial banks and rural cooperatives as first priority, as the statutory equity stake acquisition proportions of the joint-stock commercial banks are mostly reached for foreign financial institutions, and the acquisition cost is getting higher and also cannot acquire the deterministic certain proportion among management power and members of the board of directors. In addition to the lower invested cost to earn more capital gain and obtain the power of management and strategy decision, most Taiwanese banks focus on regional banks, such as the city commercial banks and rural cooperatives, to be the object of equity stake acquisition to integrate with the ways of establishment of branch, subsidiary, or sole ownership on the premise of proximity to the clients to promote the management synergy of the Chinese financial market in the near future.

Furthermore, within this analysis, we categorize Taiwanese banks as pan-government-owned banks and private banks and find that both banks’ intensity of taking equity stake acquisition have been decreased from 2005 and reached its lowest level in 2008, but it rebounded significantly and was relatively higher in 2009. In addition, both pan-government-owned banks and private banks identically possessed the highest intensity for joint-stock commercial banks, followed by state-owned banks, city commercial banks, and rural cooperatives in order. The empirical study shows that the pan-government-owned banks have stronger motives of acquisition than private banks for all types of Chinese banks, but there is less difference in city commercial banks and rural cooperatives and more in joint-stock commercial banks generally. For instance, in 2009, the largest difference in equity stakes acquisition between pan-government-owned banks and private banks is 0.153 (0.366 / 0.213) in joint-stock commercial banks, then 0.128 (0.299/ 0.171) in state-owned banks, and the smallest difference − 0.081 (0.181 / 0.100) in city commercial banks and rural cooperatives. This implies that the timing of choosing Chinese banks for equity stakes acquisition which are suitable for business strategy and management prospect is most important and helps prevent them from falling behind competitors and missing the best opportunity in advance, as most Taiwanese banks consider city commercial banks and agricultural banks’ acquisition recently, and both intensities are closing.

In addition, for the intensity of Chinese banks equity stake acquisition in different districts for Taiwanese banks, we categorize five districts as Bohai and Beijing-Tianjin-Hebei Economic Rim, Yangtze River Delta, Western China Region, Haixi Economic Zone, and Pearl River Delta. These five districts reveal the same circumstances in which intensity reaches its lowest in 2008 and ascends apparently in 2009. The empirical study shows that the Western China Region is the most attractive

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region to Taiwanese banks for acquisition, followed by Yangtze River Delta, Haixi Economic Zone, Pearl River Delta, and Bohai and Beijing-Tianjin-Hebei Economic Rim, as shown in Table 14. This is due to the asset quality, such as NPL ratio and NPL/equity ratio, of banks in Bohai and Beijing-Tianjin-Hebei Economic Rim being relatively higher than other districts on average during the last five years and affected negatively its intensity of equity stakes acquisition, as it dropped to only 0.002 in 2009, less than 0.399 in Western China Region, 0.160 in Yangtze River Delta, and 0.118 in Haixi Economic Zone.

We can also analyze pan-government-owned banks and private banks. The results reveal that the intensity of pan-government-owned banks is higher than private bank in all districts, and both reach their highest in Western China Region, followed by Yangtze River Delta and Haixi Economic Zone, and reaches the lowest in Pearl River Delta and Bohai and Beijing-Tianjin-Hebei Economic Rim. In addition, the intensity of allover Taiwanese banks is low − below that of pan-government-owned banks but exceeding private banks. Under the tendency of increasing cross-strait financial exchange and the recently signed ECFA agreement, the Western China Region which is known for its green channels, Yangtze River Delta in which most Taiwanese businesses are clustered, and Haixi Economic Zone which has similar culture and is close to Taiwan, are main districts for Taiwanese banks to access objectively in taking acquisition strategy. Hence, these three districts could be treated as the most fitting acquisition developing direction for Taiwanese banks presently with its respective estimated probability of intensity.

As the foreign financial institutions enter the China banking sector for a long period, and statutory equity stake acquisition proportions of state-owned banks, joint-stock commercial banks and major city commercial banks are mostly reached, the objects for Taiwanese banks for acquisition are seldom only for the subordinate city commercial banks and rural cooperatives besides taking over the existing equity stakes of foreign financial institutions. Although the global economy and prosperity is declined and beneficial to lower the cost of acquisition, it also will affect the performance of management and earning ability of invested Chinese banks in the near future. With the target of purely financial investment or expanding the next business scope, we should go a step further to analyze principal tactic and main prospect of taking equity stake acquisition, and contemplate the integration of both entities different culture and frame of management after acquisition to bring into the significant synergy.

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5.4 Brief Summary

China has committed the promise on open its financial market under the principles of Most Favored Nation treatment, transparency, increasing the participation of developing country, open market, achieving a progressive level of liberalization and so on when accepted to the WTO. With high degree of economic development and improved living standard in China, all foreign financial institutions hope to come up with different strategies along with their specialties in order to acquire strategic opportunities and cooperative benefits at this massive financial market.

While the bilateral financial communication and cooperation have upgraded to a new level, plus the significant relaxation of political relations and increased contact on trading, many Taiwanese banks have targeted the Chinese financial markets as the new strategic objective in recent year. With all the possible entry means, for example, launch a representative office, establish a branch, set up a wholly owned subsidiary of foreign banks, acquire equity stakes of Chinese-funded bank and form a strategic partnership, to choose from, Taiwanese banking industry makes many effort to evaluate the opportunity to enter the market in order to create the maximum value with the ongoing negotiation of ECFA.

For the equity stakes acquisition of Chinese banks under having minimized the type I and type II errors and specific baseline hazard functions, we derive the optimal probability hazard threshold of equity stakes acquisition. During 2005 to 2009, the probability of intensity of equity stake acquisition has reached the relative higher value in 2009 from the lowest point in 2008, and even the overall Taiwanese banks have not reached this optimal threshold as Cross-Straits relations improved and the economy has slowly recovered. This paper finds that the probability of intensity of state-owned Taiwanese banks is higher than that of private banks and joint-stock commercial banks and of the Western China Region, and it has higher intensity of being invested than other types of Chinese banks or areas in China. We can derive the intensity of probability with relative implicit estimation of hazard and survival value, by comparing to this optimal threshold, the likelihood of foreign financial institution, including Taiwanese banks can determine whether or not to take equity stake acquisition.

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Eventually, no matter for foreign financial institutions as leading or follower such as Taiwanese banks, all of them possess the ability to make earning under the demand has not yet reached its saturation and would continue to expand. Meanwhile, this paper points out: Taiwanese banks tend to promote the representative office to a branch or establish subsidiary in recent year for many existing Taiwan-funded enterprises as customers, and wait the right time to enter the local market and start the RMB business. This will diminish the uncertain expectation for the demand of China financial market and shorten the waiting period on operating. After the China government adopts macro-economic control to mitigate the market from overheated economy into economic bobble, it will also lower the cost on both of establishment and operation to reduce the entry barrier for Taiwanese banks and waiting period on operating in this circumstance.

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