Senior managers of China's financial firms have called for stricter supervision of financial holding companies to grant more support to China's real economy and private businesses in particular.
Emerging as a new product of market opening, financial holding companies are usually established by nonfinancial enterprises through mergers and acquisition or equity participation, and often run at least two kinds of financial firms.
Financial firms that branch out from their main business to invest in or set up other companies engaged in other kinds of financial services represent the second kind of financial holding companies.
Compared to traditional financial institutions that engage in a certain kind of financial business, these companies are more technology-driven, and their business is much more complicated and diversified.
A typical example is Ant Financial, which originated from Alipay and aimed to use new technologies to boost inclusive and green finance.
Calling financial holding companies "department stores of finance," Li Xiaopeng, chairman of China Everbright Group, said these companies could meet all sorts of financial needs of customers through a variety of means.
For instance, they may use shareholding rights, obligatory rights, debt-to-equity swap, loans, funds, and asset management to support the development of private businesses.
"But because of their rapid development and unsound operation as well as inadequate supervision from market regulators, some of these companies have had problems and made detours," Li said.
Shen Rujun, general manager of Central Huijin Investment Ltd, which has invested in several financial holding companies, listed a number of risk events that had happened either inside or outside China.
Some financial holding companies misused financial leverages by cross-shareholding and blind business expansion, some were plagued by a cumbersome management system that lost control of their subsidiaries and suffered severe losses, while others used connected transactions to transfer benefits or risks, he noted.
Zhu Hexin, deputy governor of the People's Bank of China, said that financial risks had become much more intricate these days as they often involved different financial institutions, different sectors and different markets.
"Some financial holding companies have maintained barbaric growth to rampantly expand their business in the financial industry or even used financial institutions as their cash machines, which built up risks and aggravated risk exposure. Supervision, however, did not catch up," he said.
To cope with the situation, China's central bank has selected five financial holding companies to explore more forceful supervision in the hope of mapping out a new supervision method in the first half of next year.
The five companies are China Merchants Group, Shanghai International Group, Beijing Financial Holding Group, Ant Financial, and Suning Commerce Group.
If new regulation could make clear stipulations on the business scope, organization forms, governance structure, risk segregating of financial holding companies, malpractices would be corrected, and these companies could play a significant role in supporting the real economy, Li said.