BIZCHINA> Review & Analysis
Rethinking financial role of Central Huijin
(China Daily)
Updated: 2007-01-26 10:05
Zhou Xiaochuan, governor of the People'sBank 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), theIndustrial and Commercial Bank of China(ICBC) andChina 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 ($6.2 trillion), 43 trillion yuan ($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.

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