The Beijing Financial Holdings Group Limited was formally established recently, and Fan Wenzhong, the former director of international department China Banking Regulatory Commission, serves as its chairman. According to the requirements of the Beijing Municipal Party Committee and the Municipal Government, the Beijing Financial Holdings is positioned to build a state-owned financial holding group with complete licenses, resource coordination, business linkage, and risk isolation, integrating the city's financial elements and coordinating with various financial services such as banks, trusts, investment banking securities, asset management, insurance and funds. Through the establishment of Big Data platform, it aims to promote cross-innovation in the financial business and coordinate various types of advantageous financial resources to improve the efficiency and level of the service entity economy.
The financial holding groups in China have emerged with the development of the financial industry from being separate to mixed operation. As part of the financial reform, the State Council approved China Everbright Group, CITIC Group and China Ping An Group as pilots for financial holdings in 2002. In the following years, various types of financial holding groups have sprung up. If we take the broad concept of financial holding, based on incomplete statistics, there are currently more than 60 financial holding groups in China led by centrally administrated state-owned enterprises, financial institutions, private enterprises, local governments, and internet giants.
The local government-led financial holding groups are some of the fastest growing ones. In the year 2000, the earliest local financial holding groups were established, including Tianjin TEDA, Guangdong Yuecai, Shanghai International Group, and Chongqing Yufu. After the financial crisis in 2008, the establishment of local financial holding groups has been accelerated; in March 2009, the China Banking Regulatory Commission and the central bank jointly issued a document on supporting the local governments to establish investment and financing platforms. In 2015, the local financial holding platforms mushroomed. According to incomplete statistics, there are about 20 local financial holding companies established since 2000, with provincial and regional governments being involved. In some places, some urban investment companies with strong comprehensive strength are also trying to form financial holding groups.
A major purpose for the local governments to form financial holding groups is to diversify the financing, reduce the financing cost, and promote the development of the local real economy through the combination of industry and finance. Because such groups are dominated by local governments, local financial holdings can integrate more with local financial and industrial resources, as well as with other local assets, and they enjoy more flexibility in financial services. This is especially true under the central government's strict local debt management, and the separation of the relationship between the government and various platform companies, local financial holdings are often expected to promote local economic development.
The reason why the local governments are keen to set up such financial holdings is that they hope to realize the financing function through the financial groups, replacing the former urban investment platform companies. Anbound's macro team in an internal discussion suggested that this means there has been an important change in the economic development of the cities. In the past, the urban economy relied on urban investment platform companies, and in the future, it depends on the financial holding groups.
Anbound's chief researcher Mr. Chan Kung further pointed out the differences. In the previous urbanization process, urban economic development was closely linked to the land, and the local government was tied to the land. The government's finance was then known as the land finance, and the urban economy is largely a land economy. Now that the financial holding groups have risen, the government will be more tied to finance and capital and the government's finances are likely to become capital giants. At this time, the money of the people in the financial institutions theoretically will become the money that the government can control. In Mr. Chan Kung's view, this change is not only a major responsibility for the government but also a subversion of the control of the entire society. In principle, the government does not generate wealth; it is just an institution that spends money. If the government does not only spend money but also controls as much money as possible, what will this mean? At the very least, we know that this will be a huge and subversive change, though it is unknown if the relevant departments really see this change.
In the mature Western capital market, there are very few so-called "financial holding groups". The reason is simple. Finance is a high-risk industry that requires expertise and long-term business experience to operate. Facing the massive flow and integration of industrial and financial capital, if those without sufficient financial knowledge and experience are managing billions of deposits, premiums or client assets, while banks, insurance, securities, financial leasing are regulated by different departments, the financial risks derived therefrom would be huge.
Certainly, the perception of the above changes and impacts is based on a logical possibility. It can also be regarded as an "extreme" scenario, which is a small probability event in the real world. To put it bluntly, if the financial holding groups are less powerful in controlling local resources, it would not reach the maximum impact. However, if it is the case, what would the significance of this kind of reform be? If China wants the large-scale financial holding groups to control the local economic resources, the aforementioned large impact will be difficult to avoid, and the impact on the local economy and society will be substantial.
Final analysis conclusion:
In the urban development, the transition from the urban investment platform companies to the financial holding groups and the local government being tied-up with the land to the being tied-up with finance is a major change to the local government, the urban economy, and the people; what lies within could be huge financial risks.
