New rules to de-risk investments

BEIJING: China has asked state-owned financial institutions to remain focused on their main business and eliminate unnecessary operational hierarchies, while stepping up efforts to prevent risks from the inappropriate transactions of affiliates and false capital injection, according to the Finance Ministry.

State-owned financial institutions that are engaged in overseas investment and have subsidiaries abroad should focus on their main business, follow the necessary prudential and compliance requirements, and strictly implement the due diligence and feasibility requirements, the ministry said in a notice.

The notice is an indication that the central government is tightening scrutiny of state-owned capital investment, as financial risks and fluctuations are increasing due to the slower economic growth since the Covid-19 pandemic and the rise in new cases in some major Western countries, experts said.

State-owned financial institutions should withdraw from business areas that are not at the core of their development strategies or have not yielded any financial returns for a long time, the notice said.

In general, for providing the same kind of financial service, they can keep only one subsidiary, and there should be no more than three hierarchies in the operational structure, said the notice.

The new rules also forbid false and circulatory capital injection among different subsidiaries within the same group, or using share pledges for financing, the Finance Ministry said.

“Except for financial investment, subsidiaries at all levels are not allowed to hold equities of the parent company, and the subsidiaries at all levels shall not hold each other’s shares.”

Zhou Maohua, an analyst with China Everbright Bank, said the new rules would help streamline the main businesses of state-owned financial companies and improve the regulatory efficiency.

“Financial resources will be invested in areas that can support the growth of the real economy and limit unnecessary competition between financial service providers in the same field.” — China Daily/ANN

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