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CBRC relaxes rule on finance companies
By Sun Min (China Daily)
Updated: 2004-08-04 08:40
The China Banking Regulatory Commission (CBRC) yesterday issued a new
regulation on the management of finance companies of enterprise groups.
The new rule, effective from September 1, will replace the present regulation
on finance companies that was introduced in 2000.
It will lower the threshold for the launch of finance companies by enterprise
groups in China. This will enable enterprises to open their own finance
subsidiaries to enhance the efficiency of corporate fund management and
financing services.
For example, the new rule will reduce the required minimum total assets of
all subsidiaries of enterprise groups that plan to set up their own finance
companies from the present 8 billion yuan (US$966.1 million) to 5 billion yuan
(US$603.8 million) and the minimum total turnover from 6 billion yuan (US$724.6
million) to 4 billion yuan (US$483 million) for two consecutive years.
There are currently about 6,000 enterprise groups in China, covering a wide
range of industries. Many have expressed a desire to establish their own finance
companies, said a spokesman for CBRC, the finance firms' watchdog, yesterday.
The market entry threshold of the original regulation is too high and only a
few big industrial, energy and transportation corporations have been able to
meet the criteria, while most of the other companies and foreign-funded
enterprises are kept out.
The new rule is expected to change the situation and boost the development of
enterprise groups as a whole, the spokesman said.
Wholly foreign-funded investment companies can also launch their own finance
companies to give financial support to enterprises in which they have invested.
According to CBRC statistics, China now has 74 finance companies launched by
enterprise groups, with total assets of around 450 billion yuan (US$54.3
billion).
Given the supportive attitude of regulators to the development of business,
it is expected that more licences for finance companies will be issued from
September and the pace will be much faster than before.
A number of enterprise groups, including steel company Shougang Group, coal
giant Shenhua Group, Lenovo and TCL are waiting for the issue of such licences
to form their own finance companies, market sources said.
Bo Fuheng, secretary-general of the China Association of Finance Companies,
says he expects that between 20 to 30 corporations would be lining up for the
licences in a couple of months.
The policy support will be a major boost to business, he said.
According to the new rule, adjustments will be made to the definition and
business scope of such finance firms.
It is designated that such companies will aim to provide total management for
the funds of enterprise groups, improve the application efficiency of such funds
and lower overall corporate costs.
Apart from the daily corporate financing business, they can also apply to
CBRC for a licence to underwrite corporate bonds of group subsidiaries and offer
them consumption loans and leasing services.
With CBRC's approval, they may also issue their own corporate bonds, invest
in other financial institutions and trade securities.
However, when offering more incentives, regulators will also keep a close eye
on the risk management capability of applicants and risk control of the finance
companies afterwards.
The financial status of the parent companies and their credibility will be
the major criteria for regulators when reviewing applications to launch finance
companies.
The parent companies will also shoulder more liability to guarantee payment
to clients in case of funding problems in the finance companies.
Finance firms should also guarantee a minimum 10 per cent asset adequacy and
the ratio of funds used for short-term securities investment in their total
assets should not exceed 40 per cent.
They are also prohibited from accepting deposits from the outside, according
to the new regulation.
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