TAIPEI: Taiwan plans to use its ban on Chinese investment in local banks as a bargaining chip when it will begin negotiating a planned major trade pact with the mainland, a report said today.

Taipei will also bar Chinese banks from setting up subsidiaries on the island while only allowing those counted among the world’s top 200 to open representative offices in Taiwan, said the Economic Daily News.

Only five Chinese banks qualify according to these criteria, the paper said. The government will allow local banks to invest in their Chinese counterparts and establish subsidiaries or branches on the mainland, it said.

Officials at Taiwan’s top financial regulator the Financial Supervisory Commission were not immediately available for comment. Taiwan’s existing law bans Chinese firms from direct investment in local banks.

The decision came after speculation that the Industrial and Commercial Bank of China, the mainland’s largest lender, planned to acquire 20 per cent in Taiwan’s leading Cathay Financial Holdings for up to $3 billion.

Analysts have said deals such as this may be possible under the pact known as The Economic Cooperation Framework Agreement (ECFA), which calls for the removal of barriers to ensure the smooth flow of goods and personnel.