萬國法律事務所

The Financial Supervisory Commission (FSC) has announced the new policy to allow domestic investors to purchase red chips in Taiwan without opening an account in Hong Kong.

The term “red chips” refers to the stocks of a company incorporated and traded on the Hong Kong Stock Exchange and controlled by Chinese shareholders. A company with red chips has 30 percent or more of its stocks owned by Mainland Chinese enterprises or by the PRC government.

According to the Securities and Futures Bureau of FSC, the expected benefits of this new policy include enhancing the competitiveness of securities dealers, creating commission incomes, attracting investments, and allowing investors to purchase China stocks in various ways. This being said, some predict a negative effect on the Taiwan stock market, expecting a portion of the investment funds to be drawn to red chips instead. The severity of this latter issue is still under debate.

Except for the red chips, domestic investors are also allowed to purchase Exchange Traded Funds (ETFs) in Taiwan. The H shares, which refer to the stocks of a company incorporated and traded in the China Stock Market, are still treated differently from red chips and ETFs. According to the FSC, these policies must be implemented step by step. The H shares are expected to be available for purchase in Taiwan in the future, but not at the current stage.