While Taiwan’s banks are facing a tough domestic market where too many banks competing for a small share of pie, the picture is totally opposite in China. Banks in China have high profit margins due to government’s continued dominance and protection. As China became the world’s second largest economy and the most important trading partner of Taiwan, the banking market in China became an ever-important market cannot be missed for all Taiwanese banks. However, government regulation and restrictions have placed Taiwanese banks in a disadvantaged position compared to other foreign banks. Taiwanese banks had adopted many different entry modes trying to minimize negative policy effects. Through analyzing different entry modes available to Taiwanese banks, it is hoped to provide valuable information that can be applied on bank expansion evaluation and assessment. This thesis focuses specific attention on one unique entry mode – village and township banking (VTB). It is a new-type rural financial institution designed to address the issues of short supply and low coverage of financial services in rural areas of China. The under-banked areas in China pose great opportunities to Taiwanese banks with high net interest spread, huge financing demands and favorable tax and policy treatments. First Bank is the only bank that has been approved by FSC to establish VTBs in China. Thus through an analysis of First Bank’s village banking operation, another objective of this thesis is to reveal the opportunity and challenge lie in the under-banked rural areas of China.

While Taiwan’s banks are facing a tough domestic market where too many banks competing for a small share of pie, the picture is totally opposite in China. Banks in China have high profit margins due to government’s continued dominance and protection. As China became the world’s second largest economy and the most important trading partner of Taiwan, the banking market in China became an ever-important market cannot be missed for all Taiwanese banks. However, government regulation and restrictions have placed Taiwanese banks in a disadvantaged position compared to other foreign banks. Taiwanese banks had adopted many different entry modes trying to minimize negative policy effects. Through analyzing different entry modes available to Taiwanese banks, it is hoped to provide valuable information that can be applied on bank expansion evaluation and assessment. This thesis focuses specific attention on one unique entry mode – village and township banking (VTB). It is a new-type rural financial institution designed to address the issues of short supply and low coverage of financial services in rural areas of China. The under-banked areas in China pose great opportunities to Taiwanese banks with high net interest spread, huge financing demands and favorable tax and policy treatments. First Bank is the only bank that has been approved by FSC to establish VTBs in China. Thus through an analysis of First Bank’s village banking operation, another objective of this thesis is to reveal the opportunity and challenge lie in the under-banked rural areas of China.

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