Yi Xianrong
Zhou Xiaochuan, governor of the People's Bank of China, the
country's central bank, was recently quoted by media both at home
and abroad as saying that the central government was planning to
restructure the Central Huijin Investment Co, so as a
commercialized institution operating on sound market principles it
would take care of State stakes in financial institutions.
As some of the media comments pointed out, it was the first time
the central bank head has openly expressed his position on
restructuring Central Huijin, ending speculation about the
company's future.
Inaugurated on December 16, 2003, Central Huijin was originally
meant to help restructure the Big Four State-owned commercial banks
that were loaded with large sums of non-performing loans. Its
mission also included improving corporate governance of the Big
Four, part of preparation for stock market listings.
After three of the Big Four Bank of China (BOC), the Industrial
and Commercial Bank of China (ICBC) and China Construction Bank
(CCB) issued their shares and were welcomed by investors, Central
Huijin should be viewed as a successful participant in China's
financial reform.
It also means that the time is right to restructure Central
Huijin with new goals.
The restructuring of Central Huijin not only decides the future
of the company itself; it also becomes a crucial part of the
management and operation of the gigantic financial assets owned by
the State.
By now, the financial assets of the country are more than 50
trillion yuan (US$6.2 trillion), 43 trillion yuan (US$5.3 trillion)
of which are controlled by the banks.
As the holder of the State-owned financial assets in the
financial institutions, Central Huijin must have guidelines about
its mission, business mode and operation mechanism as well as its
relationship with the government.
The idea is circulating that a financial commission should be
established based on the Finance Department under the Ministry of
Finance to take care of State-owned financial assets. This agency
would act as a representative of the State as the owner to these
assets and also manage the assets directly.
Many oppose this suggestion because the investments of Central
Huijin in BOC, ICBC and CCB were all from the country's foreign
exchange reserve, which is the liability of the central bank. In
other words, these are not State-assets at the disposal of the
central bank or the government.
Moreover, the critics believe an administrative body under the
Ministry of Finance would not make a clear distinction between its
business goals as asset manager and public policy targets as an
administrative body.
Therefore, the business model of Singapore-based Temasek
Holdings will probably be followed in the restructuring of Central
Huijin to give it a market-based position.
Created in 1974, Temasek Holdings is an investment company fully
controlled by the Singapore government. Holding nearly all of the
country's biggest companies, from transportation,
telecommunication, banking to tourism, the investment company makes
considerable profits every year.
Governor Zhou Xiaochuan made a point in his remarks about
restructuring Central Huijin. If restructured as a holding company
of financial assets, it could operate according to the law of the
market economy, make decisions more flexibly and have less limits
on its commercial activities in the capital market.
Yet a new position for Central Huijin must be legally defined,
no matter what its future direction.
The authorities should define by law the company's function,
targets, structure, business mode, appraisal of achievement and
supervision. The law should also spell out Central Huijin's
relations with all relevant departments.
Because of the absence of such law, Central Huijin is not
legally authorized though it does operate with the consent of the
government. Without an explicitly defined position, Central Huijin
cannot clarify its relations with the State or the central bank as
an agent managing State financial assets.
Admittedly, the business mode of Temasek Holdings has precious
value as a reference for addressing the problems encountered by
Central Huijin. Yet, it would be vital for us to understand the
essence of this model before we make substantial moves in its
direction.
Established to meet market requirements, Temasek Holdings does
not enjoy any favorable policy from the government, nor is it
subject to any government intervention in its investment
decisions.
Judging from the current business of Central Huijin, major
changes need to be made before it can follow in the path of Temasek
Holdings.
With full administrative penetration, Central Huijin should
attribute most of its profits to government policies. Without the
support of the government, it is almost impossible for Central
Huijin to achieve commercial revenues on its own.
As the biggest shareholder of the three listed Big Four
commercial banks, Central Huijin benefits from government policies.
The three banks would have been unlikely to go public so quickly
and be so profitable without government support.
The author is a researcher with the Institute of Finance and
Banking under the Chinese Academy of Social Sciences
(China Daily January 26, 2007)