Chinese Financial Holding Companies: A Review

Abstract

On 13 September 2020, the Peoples’ Bank of China issued The Trial Measure for the Supervision and Administration of Financial Holding Companies (FHCs), stipulating that firms that control two or more different types of financial institutions may need to establish FHCs. This emerging new type of organization has profound implications; however, serious research on Chinese FHCs is almost none. This study fills in this gap by conducting a comprehensive review on Chinese FHCs from three perspectives. First, from the perspective of macroeconomics and financial markets, this study reviews different types of FHCs and analyses the major source of risks on macroeconomic stability and macroprudential regulation. Second, from the perspective of regulation, based on this regulation document and other literature, this study explores Chinese authorities’ main regulatory objectives. Third, from the perspective of academics, this study also presents a future research agenda regarding Chinese FHCs.

Keywords:

• Financial Holding Companies (FHC)
• People’s Bank of China
• macroprudential regulation
• systemic risk
• privately-owned enterprise

Acknowledgement

The author would like to thank the Editor-in-Chief, Professor Hung-Gay Fung, and a referee for very timely, critical and valuable comments on an earlier version of this paper. All errors are the author’s sole responsibility.

Notes

1 Wind Info (www.wind.com.cn/en) is the mostly widely used Chinese economic and financial data and information provider. It serves more than 90%of the financial firms in the Chinese market, and 75% of the Qualified Foreign Institutional Investors in China.

2 Source: Wind Info. China Banking and Insurance Regulatory Commission

3 Source: Fortune. https://fortune.com/company/citic-group/global500/

4 Source: Fortune. https://fortune.com/company/china-everbright-group/global500/

5 Source: Wind, official company websites

6 Source: Wind Info, PBC

7 China’s Five-Year Plans (in Chinese: 五年计划) are a series of social and economic development initiatives issued since 1953. Planning is a key characteristic of the Chinese economy.

8 The Measure (Article 6) states that if the size of financial institutions controlled by a firm has reached a certain level, or the PBC believes necessary concerning macroprudential regulation, this firm should be transformed to be a FHC.

9 Data in this paragraph are from Wind Info, PBC and China Banking and Insurance Regulatory Commission.

10 Source: Wind Info, National Bureau of Statistics. Furthermore, the performance of state-owned enterprises has improved significantly since 2015 (although dropped in 2019). In 2019, the operating margin for state-owned enterprises is 5.67 per cent.