April 27, 2018 / 11:25 AM / 9 months ago

China tightens rules on non-financial firms investing in financial institutions

BEIJING (Reuters) - China has issued guidelines to tighten supervision on non-financial companies investing in banks and other financial institutions, in the latest step to rein in financial risks.

FILE PHOTO: A woman walks past the headquarters of the People's Bank of China (PBOC), the central bank, in Beijing, June 21, 2013. REUTERS/Jason Lee/File Photo

Chinese leaders have vowed to ward off financial risks to ensure the economy’s ascent, as the country faces rising trade tensions with the United States.

The central bank unveiled far-reaching rules for the asset-management sector on Friday, including regulations on leverage limits and a ban on implicit guarantees, as part of broader efforts to reduce financial risks. [nL3N1S457U]

China will strictly restrict irrational and blind investment in financial institutions, according to the guidelines issued by the People’s Bank of China and banking, insurance and securities regulators.

The rules will “promote the financial industry to better serve the real economy and effectively prevent and control financial risks”, the central bank and the regulators said, adding that many non-financial firms had invested in financial institutions through mergers and acquisitions.

Some companies had falsified capital injections when they invested in financial institutions, had improperly intervened in the operation of financial institutions, and carried out other risky transactions, they said.

Main shareholders, or controlling shareholders of financial institutions, should have sound core business and governance, strong capital bases and management capability, according to the guidelines.

Firms with weak capacity in risk controls would be prevented from becoming major shareholders or controlling shareholders of financial institutions, the guidelines stated.

State-owned firms must report their investment in financial institutions to the ruling Communist Party’s Central Committee and State Council, the cabinet, according to the rules.

Non-financial firms cannot borrow funds to invest in financial institutions and controlling shareholders of financial institution must meet certain requirements on profits and asset ratio, the guidelines stated.

Reporting by China monitoring team and Kevin Yao; Editing by Jacqueline Wong, Robert Birsel

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