China is tightening scrutiny of financial institutions’ overseas investment using State-owned assets, by further checking shareholders’ quality and funding sources, in order to prevent losses of State-owned capital, according to a report reviewed by the nation’s top legislature.
Additional monitoring will also be made of investment targets, the asset transaction process and the transfer of property rights, and China is planning to build a nationwide unified statistics system to supervise State-owned financial capital, said the report delivered by Finance Minister Liu Kun to the Standing Committee of the National People’s Congress on Oct 24.
This is the first time that the Chinese government has disclosed financial institutions’ State-owned asset statistics to the public. A system was established last December, asking the State Council to regularly report the State-owned asset management situation to the Standing Committee of the National People’s Congress.
A specific national regulation on State-owned financial asset management is under discussion, focusing on improving the quality and efficiency of capital investment, as well as reining in wild expansion and preventing systemic financial risks, according to experts close to the matter who declined to be named.
Apart from risk control, “another key principle is to restructure the financial capital investment structure, to guide more sources shifting into high-tech oriented financial services from traditional businesses,” an expert who is involved in the regulation’s drafting work told China Daily.
According to the finance minister’s report, by the end of last year the country’s financial institutions’ investment in overseas institutions, including domestic companies launching overseas branches, reached 18.1 trillion yuan ($2.6 trillion), up 50 percent over 2013, mainly focusing on the banking sector, the finance minister said.
The overseas investment calculation also included foreign debt held by Chinese financial institutions, and fast growth may lead to higher leverage level and debt risks, said analysts.
“Along with the fast growth of State-owned financial assets’ overseas investment, attention should be paid to financial institutions’ foreign debt and leverage level. Measures should be taken to ease financial institutions’ pressure of repayment, especially those issuing a large amount of bonds overseas,” said Wen Zongyu, a director from the research institute of fiscal science under the Finance Ministry.
China’s financial institutions held State-owned assets totaling 241 trillion yuan by 2017, accounting for around 80 percent of the nation’s total financial assets. They also had a total debt of 217.3 trillion yuan, according to the report from the ministry.
The report called for the further optimization of the ownership structure of State-owned financial institutions in freely competitive areas. Some of them could further reduce the proportion of State-owned shares by injecting private funds or further opening-up measures.