The Chinese market has produced a number of financial holding groups; among the state-owned, there are Everbright and CITIC, while among the private groups there are D’Long, Tomorrow and Anbang Insurance. China Ping An Insurance belongs to another relatively successful financial holding group, which is semi- state-owned and private.
China’s private financial holding groups developed very rapidly and fiercely. Take the Tomorrow Group controlled by Xiao Jianhua as an example; its holding of assets was complicated, and most of its assets were financial assets. Some media had estimated that as of the end of June 2017, Tomorrow Group had already controlled 44 financial companies, including Harbin Bank, Industrial Bank, Shanghai Bank, Tianan Life Insurance, Sino Life Insurance, New Times Trust, GF Securities and others, involving in banking, insurance, trusts, securities, funds, leasing and futures, covering all the licenses of the financial industry, and the shares of the assets of the financial institutions controlled were as high as RMB 3 trillion; no richest people in China could compete with this. It is said that Xiao Jianhua is now detained in Shanghai and is cooperating with the relevant departments to sell all of Tomorrow Group’s investment. The process of divestiture is expected to last for more than three years.
From the open information, it is known that the investigation on Tomorrow Group is related to anti-corruption and China's rectification of financial markets. China's financial regulators have been hoping that more money will flow to the real economy, but much of the money goes to the financial and real estate sectors with higher liquidity and higher profit margins. If the capitalists are required to pay off their bank debts in the name of financial deleveraging, these huge amounts of capital can be released into the real economy. At the same time, in order to prevent these capital tycoons from the illegally outflowing large amount of capital, China has implemented strict foreign exchange controls since 2016 to allow more financial resources to remain in the country.
There are indications that the financial holding groups, especially the private ones will see the strongest “regulatory storm” in history. Yi Gang, the Governor of the People's Bank of China once criticized the financial holding groups and said that “a few financial holding groups that are ‘savagely’ growing have large risks, such as absconding capital, circulating capital injection, false capital injection, and interest transfer through illegal transactions. This has caused cross-agency, cross-market, and cross-sector contagion risks”. In the past, Zhou Xiaochuan, the former governor of the People's Bank of China also made a clear statement on the financial holding groups and pointed out the problems of some of such groups. In January 2018, when Guo Shuqing, Chairman of the China Banking Regulatory Commission, analyzed the main problems of the banking industry, he said that "Some shareholders even use the banks as their cash machine. A few lawless elements have complicated structures, falsely funded, circularly injected capital, and illegally constructed huge financial groups". This warning gave the definition of “unlawful elements” to some of the people who built the financial groups; it is also a warning for rectifying the private financial holdings. According to sources, this year's key supervision is in private financial control, and the comprehensive supervision of financial holding groups has been pinned.
Those who engage in financial holdings would seek various "shell resources." Anbound’s chief researcher Mr. Chen Gong pointed out there are three kinds of shell resources in the financial market. The first type is quite familiar to the market, which is the listed company. In fact, the term “shell resources” originated here. The second type of shell resources is a state-owned enterprise. Such shell resources can be used for acquisitions and loans. Because of its state-owned enterprise status, it is easy to be used. After it is used up, equity transactions will be conducted and the real trader will replace it or exit from there. The third type of shell resources is not a specific enterprise, but an innovative industry with high policy density. It can use the national industrial policy and the market for its own advantage; this is also a type of shell resources. In an era of excess capital, capitals that are chasing after innovative industries are extremely common. From the practice of the Chinese market in recent years, it is a very popular routine to use innovative industries to pursue interests. Mr. Chan Kung pointed out that these three types of shell resources are used by those who are engaging in the capitals; they are not only a carrier for engaging in the capitals but also a means for asset transactions. Such means are indispensable to infiltrate into the banking and insurance sectors for acquisitions.
However, these are still the shells. It is normal for all kinds of shell resources being popular in the market, and are used by various capitals. The answer is no. Take listed companies as an example. If a company is listed on the market, with strict delisting and good supervision, the value of the listed company's shell resources will be greatly reduced to the level that the company might become obscure. In another example, if China's financing market is loose and free, fair and transparent, and highly market-oriented, then the value of state-owned enterprise identity as a shell resource will be greatly reduced, and the related unfair financing will also be reduced. Take the innovation industry as another example. If the government does not strongly promote the development of certain innovation fields and does not use the power of the government to mobilize capital to enter the fields or introduce various strategic plans and industrial policies to stimulate certain industries, various policy hurdles would be difficult to form. There will not be so many risks of excess capital bubbles.
Final Analysis Conclusion:
Overall, all kinds of shell resources are still the aftereffects caused by the extreme policies in China. If there were no such extreme policies, there would be no resource attribute of the shell resource, and there would be no financial holding groups. Therefore, the equivalence of the policies is very important.
