China: Banks with Taiwan ties risk ban

China's stock markets are the fastest growing in the world

By CNN's Alex Frew McMillan
in Hong Kong

SHANGHAI, China (CNN) -- Investment banks that treat Taiwan as a sovereign state or who promote its government risk being barred from business in China, its top securities official says.

But purely commercial relationships between international investment banks and companies in Taiwan are "OK," says Zhou Xiaochuan, chairman of the China Securities Regulatory Commission.

Banks that promote the Taiwanese government or its interests as an independent state are guilty of "political misconduct," Zhou said.

If investment bank conduct goes against China's "One China" policy, or treats Taiwan like a country or government, "we must show some kind of dissatisfaction," Zhou explained.

First official word

CNN.com Asia More news from our Asia edition

The comments, reported in the Financial Times, are the first official word from China since it barred Credit Suisse First Boston from a deal to float stock of China Unicom, China's No. 2 cell-phone company.

Beijing was angry after CSFB hosted Taiwan's finance minister, Yen Ching-chang, and another Taiwanese politician at a March investment conference in Hong Kong.

One CSFB executive said Beijing's "blood was boiling" over the trip, as well as a roadshow CSFB took to Europe that included Yen.

Chinese officials also objected to research material that failed to refer to Taiwan as a part of China.

It's unclear how long CSFB is blocked out of China. It is expected to compete strongly in the mainland, thanks to the good contacts there of new CEO, John Mack.

Knuckle rap

But the knuckle rap from Chinese officials has caused other investment banks to watch how they handle Taiwan. Goldman Sachs, Merrill Lynch, J.P. Morgan Chase, ABN Amro and Daiwa Securities have canceled similar roadshows promoting Taiwan, executives say.

China is the fastest-growing equity market in the world. Investment banks walk a fine line with Chinese regulators, and often taking huge cuts in commission to win business.

They will work for 1 percent to 2 percent of the offer in China, instead of the 7 percent fee common on an initial public offering in the United States.

But most also operate in tech-heavy Taiwan. China views the island as a renegade province and works hard to contain its official relations, particularly with other governments.

Taiwan has vociferously defended its independence from the mainland, after a civil war in 1949.

Zhou said China had an "open-door" policy but also coordinates "political and economic" affairs.

He said the CSFB tussle was in the in the process of being resolved. The CSRC, China's equivalent of the U.S. Securities and Exchange Commission, doesn't have official responsibility but is watching developments, he said.

CSFB has so far declined to comment on the ban.