...Systemic Risk Containable: Fitch Ratings estimates Taiwanese banks' aggregate gross China exposure at USD90bn as of end-2013 ¡ still moderate relative to overall banking system assets (7%). To cast the net wide, the estimates include exposures not captured in the Financial Supervisory Commission's (FSC) China exposure calculation ¡ mainly short-term trade finance, investment-grade interbank placements, and loans guaranteed by qualified Taiwanese corporate headquarters. Extension to Offshore Manufacturing: The largest component (USD40bn) of the aggregate gross China exposure was lending to Taiwanese corporates operating in China, financing offshore manufacturing activities. Taiwanese corporate headquarters generally guarantee the borrowings at their China operations. The headquarters have been able to retain substantial profit through internal transfer pricing with their subsidiaries in China, reflected in part by Taiwan's large trade surplus with China and Hong Kong (USD77bn in 2013). Exposure...
