TAIPEI: Taiwan plans to sign an agreement with the mainland in October that will allow some of the mainland's huge pool of liquidity to start flowing into the island's stock market, local media reported yesterday.

Representatives from the two sides could sign the memorandum of understanding in Taiwan, on the mainland or in Hong Kong, the Commercial Times reported, citing unnamed sources.

Once it is signed, institutional investors will be allowed to buy shares on the Taiwan Stock Exchange, which so far has been closed to mainland money.

Taiwan-based banks will also be permitted to upgrade their representative offices on the mainland to branch status, meaning they can start engaging in business for profit.

The Economic Daily News reported that Taiwan expects to kick off negotiations on a separate trade agreement with the mainland in October.

Taiwan's new "premier" Wu Den-yih, who took office last week, has asked his "cabinet" to prepare for negotiations on the Economic Cooperation Framework Agreement, the paper said.

Taiwan is waiting to hear from the mainland on whether the government in Beijing is prepared to hold the talks next month, the report said.

The pact is seen as key in maintaining Taiwan's competitiveness on the mainland at a time when other economies in the region are negotiating free-trade agreements with Beijing.

Officials from the "economics ministry" and government information office declined comment when asked to confirm the reports.

AFP

(HK Edition 09/15/2009 page2)