China's major financial institutions and conglomerates are pushing for changes in existing regulatory framework in the financial sector. The institutions want to wipe out barriers separating sectors of banking, securities, insurance and trust.

The companies' ultimate goal is to win approval for cross-investing between the sectors and have "financial holding companies," which control their investments in different financial sectors, established.

"We suggest financial authorities allow financial institutions to invest among themselves," said Jiang Jianqing, president of the Industrial and Commercial Bank of China.

The China International Trust and Investment Corp (CITIC) has submitted an application to set up its financial holding company and is awaiting approval, said Ling Xiaodong, deputy director-general of CITIC Research International.

Many brokerages, such as the Shanghai-based Haitong Securities, and some non-state conglomerates, have also expressed a strong interest to jump onto the bandwagon, media reports said.

Financial authorities have not made any comments on the suggestions since they resurfaced since the beginning of this year, although until last year they repeatedly said proposals of this kind would not go ahead.

The very idea of connecting the different financial sectors through investments used to sound heretic in light of the Commercial Bank Law stipulation that prohibits banks' involvement in financial services other than banking.

But the argument that domestic firms need to diversify investments to compete with foreign rivals after its accession to the World Trade Organization justified the re-emergence of the bold proposal.

"We suggest that the Commercial Bank Law be amended," Jiang said.

In fact, lines between the sectors were blurred before the commercial bank law was promulgated in 1995. Trust and investment companies were the biggest beneficiaries of the regulatory ambiguity in those years because they were literally conducting everything from credit business, securities underwriting and trust and investment.

It was exactly these investment and trust companies' poor management and their hefty losses that made the central bank determined to seriously pursue compartmentalization.

However, two heavyweight companies that are under the direct supervision of the State Council - CITIC and the China Everbright Group - were permitted to retain their stakes in different financial sectors even after officials decided to cut off the sectors from one another. Both CITIC and Everbright have industrial operations, equity shares in or own banks and securities companies.

"Although we have been allowed to operate the financial institutions legally, we still need to apply for the license (for the financial holding company) to mark the official start of the company that holds them," CITIC's Ling said.

Other big players that have made multi-sector investments, but were slow in severing them from one another, the Shenzhen-based Ping An Insurance Company of China being an example, were also said to have a good chance in winning a financial holding company license.

(China Daily December 19, 2001)