Citi Exit Exposes Taiwan's Deep-Seated Political and Economic Risks
China Times Editorial, April 19, 2021
Citigroup dropped a bombshell with the announcement of its exit of consumer banking in 13 markets, including Taiwan. From one perspective, this is Citi’s individual change of operation strategy, but from a macro perspective, it represents decreasing connection with the international and foreign investment of Taiwan’s economy and industry, except for technology which outshines other sectors, and there is a crisis and risk of "inward contraction."
Citi announced it will close its consumer banking business including credit cards, savings, credit, and mortgage services in 13 countries: Taiwan, mainland China, Australia, Bahrain, India, Indonesia, South Korea, Malaysia, the Philippines, Poland, Russia, Thailand, and Vietnam. According to industry analysis, the consumer banking business has become a Red Ocean market under fierce competition, and has compressed profit margins. So, Citigroup prefers to move away from consumer banking to focus on institutional finance businesses.
On the surface, Citigroup withdraws the consumer banking not only from Taiwan but also from other markets including China, India, and Russia, it is just a simple change of business strategy. "Don't think too much about it." But as far as Taiwan is concerned, it cannot simply be one foreign bank's withdrawal from the consumer banking market. The implications and impact are far greater.
Citibank is one of the few "too big to fail" financial giants in the United States. It is also the largest foreign bank in Taiwan. It has been in Taiwan for over 50 years, especially in the field of consumer banking. Citibank created the consumer market for credit cards in Taiwan. Citi is the top credit card issuer among foreign banks in Taiwan and the 6th largest in the sector overall. With such a history and influence, Citibank still decides to sell and leave.
In retrospect, Citibank is the "latest" fleeing national and foreign banks, and only sells the consumer banking business. In fact, the withdrawal of foreign financial institutions from Taiwan is already a trend. In the past few years, Credit Suisse, Standard Bank of South Africa, Scotiabank, Barclays Bank have withdrawn from Taiwan one after another. Australia and New Zealand Banking Group Ltd. sold its retail and wealth management business to DBS Bank. As for insurance companies, there are only 3 or 4 foreign insurance companies still operating in Taiwan. The foreign insurance companies sold to domestic financial institutions, including ING, Prudential, Global Life, New York Life, and Prudential Financial etc., the list can be long.
The significance of foreign financial institutions in Taiwan is not just for the foreign business to seize the Taiwan market and for consumers to have more choices, but also to connect Taiwan with the international network, create job opportunities, introduce new business concepts and products, and promote industrial upgrade and progress.
Last year, despite the global economic recession, Taiwan’s economy maintained positive growth. This year’s estimated growth rate could reach about 5%, a brilliant performance. Taiwan's semiconductor industry (or rather the Taiwan Semiconductor Manufacturing Company, TSMC) has become the focus of global attention and even become a sort of "savior." Through government propaganda and pitching of the cyber warriors, these have become the achievements of President Tsai Ing-wen’s administration.
TSMC’s success today is the culmination of a 40-year process. Seeded at the time of the Kuomintang, a corrupted ruling party in the eyes of the Democratic Progressive Party (DPP). Grown by hard works of all TSMC employees. There is hardly any contribution by the incumbent DPP administration. Over the past two years, semiconductors have become the focus of the U.S.-China science and technology warfare. This has put TSMC on the stage of geopolitical competition. Mainland China, the United States, Japan, and even Europe all strengthen their own semiconductor manufacturing. With the intensification of U.S.-China geopolitical competition and the deterioration of cross-strait relations, it is worrying that this brilliant economic achievement will become the last sunset.
From a macro perspective, Taiwan’s economy has benefited from being "outward-oriented" over half a century. From export-oriented to liberalization and internationalization, Taiwan has enjoyed good external environment. Politically, it has been friendly to the United States, and equally important, maintained stable cross-strait relations. But now it is facing increasing "inward-contraction" problems in both politics and economy. Taiwan has completely fallen to the United States in international politics and is willing to become a pawn in the U.S.-China rivalry. Disregard the mainland across the strait as the most imminent force affecting Taiwan's security, the Tsai administration strategic blunder renders Taiwan increased risk.
Economically, Taiwan’s over-reliance on technology and semiconductors is even more conspicuous. The cases of foreign investment in Taiwan as proclaimed by the Tsai administration are only in the technology industry, especially in semiconductors. Taiwan’s over-reliance on semiconductors has made foreign financial media conclude that both Taiwan and South Korea’s economy have the "Dutch disease" for over-reliance on semiconductors. (Referring to over-reliance on a certain industry, this leads to the weakening of other industries and causes many problems in the economy).
This situation has Taiwan "put eggs in one basket" and highlights issues of excessive concentration of the economy and industry. The semiconductor industry consumes too much resource. It is doubtful whether Taiwan can sustain it. And Taiwan cannot join important international economic and trade organizations, it will be more difficult to gain foreign investment in the future and further disconnected from the world. Taiwan becomes more dependent on the United States, yet maintains a schizophrenic policy towards mainland China: "export dependency, political confrontation". The situation is hard to last, and in the end, will deteriorate into serious social imbalance.
In term of the economic data, Citi's withdrawal from Taiwan's consumer banking market is a "trivial" matter; but from the perspective of Taiwan's political and economic inward contraction, it has exposed the deep-seated political and economic danger and risks.