Bank doors open to private funds

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Private companies can buy into banks through private stock placements, new share subscriptions³, equity⁴ transfers, mergers⁵ and acquisitions, according to a guideline released by the China Banking Regulatory Commission on its official website.

 

And private investment is also welcomed in trust, financial leasing and auto-financing companies, it said.

 

The guideline also lowered the minimum shareholding⁶ of the main initiator for rural banks, which are usually major State-owned commercial lenders, from 20 percent to 15 percent, to stimulate⁷ private investors⁸’ willingness to lend to rural residents and small enterprises.

 

"The banking regulatory branches at different levels cannot set up separate restrictions⁹ or additional conditions for private capital to enter banking sector¹⁰. And they are obliged to improve transparency of the banking market access constantly," the CBRC said.

 

"I’m very pleased to see the authorities encouraging and guiding the private capital to invest in the banking sector. The threshold of the financial industry certainly should be higher due to risk concern, but there should be clear and transparent¹¹ access standards that could be applied¹² to all kindsf investors," said Guo Tianyong, director of the Research Center of the Chinese Banking Industry at Central University of Finance and Economics.

 

"Otherwise, private capital would always be blocked or bounced back by an unseen 'glass door'," he said.

 

To boost lending to the private sector, China should allow private capital to play a bigger role in financial institutions, and encourage private lending companies with good operating conditions to transfer into commercial banks which could also take in deposits, said Wu Xiaoling. Wu is a former deputy central bank governor and now vice-chairman of the National People's Congress Financial and Economic Affairs Committee.

 

"The government has encouraged small lending companies to turn into rural banks," she said. "But with a minimum shareholding requirement of the main initiator, private investors lack enthusiasm for such things."

 

The government has been opening some State-controlled and monopolized¹³ sectors¹⁴ to private investment to shore up an economy that is losing steam amid rising global uncertainties¹⁵.

 

China’s securities regulator announced on Friday it will modify rules to help private companies to raise capital through sales of bonds and public shares, and encourage them to list overseas. And private investment would be encouraged in securities and futures¹⁶ brokerages, it said.

 

The State Council on Wednesday pledged more attention to "stabilizing¹⁷ economic growth" amid fears that the national economy may slow further.

 

Bao Yujun, president of All-China Private Enterprise Federation¹⁸, said uncertainty¹⁹ over external demand and slower economic growth made it necessary for the government to rely more on private sector.

 

"The official target of a 16 percent increase this year (5.76 trillion) in fixed²⁰ asset investment indicates total investment of 36 trillion yuan, but the central government could only channel about 402 billion yuan, which means more room is available for private investment," he said.

 

China recently allowed private capital to enter the railway market, which was dominated by State-controlled sectors, and the National Development and Reform Commission said last week that it is drafting rules to open up electricity, oil and natural gas sectors for the private investors.

 

Private investors can also take part in the restructuring of SOEs through cash investment, share stake acquisition, subscription² to SOE’s convertible²¹ bonds, and finance leases, according to a guideline released by the State-owned Assets Supervision²² and Administration Commission on Friday, without giving details.

 

It added that private investors can band together or establish private equity funds with SOEs to invest in strategic emerging industries or make overseas investment.

 

But analysts²³ and private companies questioned how much private enterprises would be able to benefit even if more specific rules are issued.

 

Guo Gengmao, the governor of Henan province, said earlier that local governments are reluctant to welcome private players to some public areas, because local officials would be blamed if some private companies sacrifice the public interest to make more profit.

 

"The key to lowering the threshold for private capital lies in administration in accordance with law," said Wei Yingning, former vice-chairman of China Insurance Regulatory Commission.

 

"For example, if a government branch prevented a private company from entering a certain area and the branch’s decision was not supported by law, would there be an efficient way for the company to sue successfully?"

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