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Some Experience Gained from Undergoing Pilot Programs of the Financial Holding Model and Integration Of Activities

The historical evolution of the Chinese financial industry and some pilot programs approved by the State Council have provided some financial conglomerates or institutions that engage in activities or hold shares in companies in activities across different financial sectors. Such conglomerates and institutions can be broadly grouped under four basic groups plus two special additions, as follows:

Basic Groups

1. The first group consists of conglomerates approved directly by the central government, such as CITIC Group, China Everbright Group, and China Merchants Group. Besides financial services, they are also widely engaged in industrial activities. Because of current franchise management system in the Chinese financial industry, these conglomerates make an effort to expand the scale of financial activities. As a result, the assets of financial subsidiaries constitute a large chunk of the total assets of conglomerates.

2. This is business created by a financial institution engaged in activities in another financial sector under a pilot program or crossover, as a result of equity investment. This includes a fund management company incorporated by a bank under a pilot program, a bank's investment and equity participation in an insurance company under a pilot program, the acquisition of a trust company by a bank, or an insurance company's investment or equity participation in a commercial bank.

3. These are emerging financial asset management companies (AMC) that have created or acquired banking, securities, insurance, and other subsidiaries.

4. This last group is nonbanking conglomerates holding shares of financial institutions in different types.

Special Additions

1. The first special addition is the China Investment Corp. (by direct investment or investment via the Central Huijin Investment Ltd.) as (controlling) shareholder in domestic financial institutions of different kinds.

2. The second is banks or other financial institutions that have incorporated, acquired, or invested in overseas subsidiaries engaged in activities across different sectors (there is no separation of activities in the host countries), such as ICBC (Asia) and BOC International.

The above classification indicates that the existing Chinese financial holding model is clearly policy oriented. Because the need for reform and development policy varies in different historical periods, the corresponding financial holding model reflects different values and practice characteristics. Unlike similar foreign models, the Chinese financial holding model is usually a derivative product of China's foreign strategy or financial reform, rather than a natural outcome of the effort to adapt to the development of financial markets and to integrate financial resources.

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