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UPDATED: October 2, 2014 NO. 40 OCTOBER 2, 2014
Share and Share Alike
The crux for the mixed-ownership reform in the financial sector is to reduce the stake of state-owned capital
By Wang Jun

CHANGING THE STATUS QUO: Bank of Communications may yet introduce even more private and foreign investors to deepen its mixed-ownership structure (CFP)

The mixed-ownership reform of China's state-owned banks has recently been stepped up. Bank of Communications, the country's fifth largest lender, said in July that it is studying plans to deepen its mixed-ownership structure, a move that may introduce more private and foreign investment into the state-controlled bank.

The senior management of Bank of China said at the announcement of its interim results in mid-August that the bank will engage in active exploration of the opportunities opened up by the mixed-ownership reform.

In early August, the Chinese Government approved a revamp of the ownership structure of China Everbright Group, a core state-owned enterprise operating in such businesses as banking, securities, insurance and investment management. The revamp will transform the group into a joint stock company, a corporate structure that makes it easier to add new investors and is essential to going public.

In the securities industry, Anhui Guoyuan Holding (Group) Co. Ltd., a state-owned controller of Guoyuan Securities Co. Ltd., is planning to introduce private investment. China Huarong Asset Management Co. Ltd. has also introduced seven strategic investors and is actively exploring its options under the ownership reform.

Much at stake

"Large banks and insurance companies have all gone public after joint stock reform and are already mixed-ownership companies in the strict definition of the term, but they are still overwhelmingly controlled by state capital resulting in the serious problems endemic to monopolized operations," said Mei Xingbao, an external supervisor of Bank of China, adding that to advance the mixed-ownership reform in the financial sector, the country should nominate two large banks, a large insurance company and a state-controlled securities company for experimentation.

When talking about the mixed-ownership reform in the financial sector, Ma Weihua, former President of China Merchants Bank, once said, "In the four largest state-controlled banks, the control of state capital is still strict and a full complement of incentive and restraint mechanisms are sorely lacking."

Lian Ping, chief economist of Bank of Communications, thinks that although all the commercial banks have adopted a joint-stock structure, few of them have realized effective mixed ownership. In terms of shareholding structure, a mixed ownership should be composed of a diverse range of shareholders, but currently state capital controls too high a proportion of shares in some state-controlled banks, which are still far from possessing a true mixed-ownership structure.

Industrial insiders think an important step for the mixed-ownership reform would be to improve corporate governance through readjustment of shareholding structures. Li Jiange, Chairman of Shenyin and Wanguo Securities Co. Ltd., said in the four largest state-owned banks, mixed ownership has not yet really been established.

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