China issues new rules to tighten control over financial holding firms

Beijing

CHINA has issued new rules to regulate financial holding companies, in its latest move to prevent systematic risks to the country's vast financial sector.

The new rules, announced on Sunday, were rolled out as a small number of companies expanded blindly into the financial sector without isolation mechanisms and while accumulating risks, the People's Bank of China (PBOC) said in a statement.

"Financial holding companies have already existed in our country, but those companies have not been included in the supervision framework, and there is a loophole in regulations," Pan Gongsheng, PBOC's vice- governor, told a briefing in Beijing on Monday.

Mr Pan named the state-owned Citic Group, China Everbright Group and China Merchants Group as eligible financial holding entities, as well as local government-backed Shanghai International Group, Beijing Financial Holdings Group, and the fintech giant Ant Financial.

Jack Ma's Ant Financial, now renamed Ant Group, is seeking dual listings in Hong Kong and Shanghai.

Mr Pan criticised a small number of firms, including Tomorrow Holdings, Anbang Group and CEFC China Energy Co, for expanding into the financial sector using a complex web of shareholding structures, and falsifying capital injections and misusing funds from financial institutions.

The new regulation will put up a firewall between the industrial sector and the financial sector, to "prevent cross-institution, cross-market, and cross-sector contagion risks", Mr Pan said.

Companies must have at least five billion yuan (S$1 billion) in capital to be licensed as financial holding firms, according to the rules. Moreover, companies that hold banking units will need to have at least 500 billion yuan in total assets, and those that do not hold banking units should have at least 100 billion yuan.

The regulation will take effect on Nov 1, 2020, and will give companies a one-year grace period.

If financial holding firms fail to meet the new rules, the PBOC can force a share sale. The PBOC may also propose anti-trust investigation to the State Council against financial holdings if they affect financial stability or violate fair competition.

Mr Pan also noted that China has issued rules on capital and financing management for key real estate companies, a move aimed at enhancing regulation and transparency of real estate financing. REUTERS