In a change from China’s recent international commodity takeovers, a Chinese firm is looking to buy into a Taiwanese telecom company. China Mobile will buy as much as much as 12% ownership in Far EasTone Telecommunications for $528 million. Consolidation and further interest in China’s own telecommunications business is sending domestic firms overseas in a bid to grab inexpensive market share.
An Important Deal for Both Nations
The business deal will be the first time in nearly 60 years that a state owned Chinese company is buying equity in a Taiwanese corporation, despite their geographical positions. Telecom companies are rarely involved in international buyouts due to the fact they play a key role in national defense and are important to domestic military operations. The purchase should go through without a hitch, with Taiwan unlikely to stop the equity purchase.
An Instant Success
The merger spurred a rally in Taiwan, where investors sent stocks higher by 6% in a bid to profit on upcoming economic changes. Several key brokerage firms and analysts touted Taiwanese stocks due to the merger and an entry into an international health exhibit. The two events put Taiwan in a position to profit from global trade deals.
A Renewed Sense of Friendship
Since a change of power last May, discussions between China and Taiwan have warmed. For decades, Chinese citizens were unable to travel to Taiwan, but a recent deal allows direct flights to Taiwan from China. Key leaders also agreed on banking discussions, which would allow banks to do international businesses and open international banking centers.
Banking Could Put Taiwan on Financial Map
The discussions are just the tip of the iceberg for the Taiwanese economy. Further deals between the two governments could allow Taiwan to better compete in the international market. Investors hope so, as Taiwan has experienced very little economic growth as the two nations fought over economic issues. Allowing Taiwanese banks into China could also help Taiwan grasp a larger share of the banking sector and allow the companies to mutually benefit from equal exchange.
Taiwan Has Hope
Each year, a large amount of tourism money leaves China, and Taiwan is now in a good position to capitalize upon Chinese travelers. Previously, travelers from China needed to take two or three-stop flights that would end up taking five times longer than a direct, one-way flight to Taiwan. With the direct flights now between China and Taiwan, the latter can begin to maximize its tourism revenues and maintain a better trade balance.