Cen­tral bank to reg­u­late rapidly grow­ing fintech

China Daily (Hong Kong) - - BUSINESS -

China’s largest coal miner Shen­hua Group and en­ergy pro­ducer China Guo­dian Corp, which are mulling a merger, have ex­tended sus­pen­sion of trad­ing in their shares for the fifth time.

The lat­est sus­pen­sion was till Fri­day. But, as the merger dis­cus­sions are still on, the two State-owned en­ter­prises made a joint state­ment on Fri­day that they have re­quested the Shang­hai Stock Ex­change to ex­tend the sus­pen­sion by one more month till Sept 4.

The merger dis­cus­sions have al­ready sorted out key is­sues like power pro­duc­tion and post-merger op­er­a­tions.

Other is­sues like re­or­ga­ni­za­tion of as­sets and trans­ac­tion modes are un­der dis­cus­sion, the com­pa­nies said in the state­ment.

The planned merger will likely cre­ate an en­ergy gi­ant with com­bined as­sets es­ti­mated to be in the range of 1.73 tril­lion yuan ($254 bil­lion) to more than 1.8 tril­lion yuan.

Ac­cord­ing to on­line news out­let Jiemian.com, which quoted Guan Weizhu, Guo­dian’s safety pro­duc­tion direc­tor last week, the merger plan has been re­ported to the State Coun­cil, China’s Cab­i­net.

The merged en­tity, which will be tem­po­rar­ily named Na­tional En­ergy In­vest­ment Corp, will likely have a debt ra­tio of more than 60 per­cent, Guan was quoted as say­ing at the 11th China New En­ergy In­ter­na­tional Fo­rum last week.

An­a­lysts be­lieve the planned en­ergy merger could well her­ald a new round of merg­ers among SOEs across in­dus­tries.

Zhou Dadi, a se­nior re­searcher at t he China En­ergy Re­search So­ci­ety, said t he merger of t he en­ergy gi­ants would see the creation of a big­ger and more com­pet­i­tive SOE in the global mar­ket.

Ac­cord­ing to the Na­tional Devel­op­ment and Re­form Com­mis­sion, sub­stan­tial re­forms will en­sue in in­dus­tries like elec­tric­ity, oil, nat­u­ral gas, rail­way, civil avi­a­tion, telecom­mu­ni­ca­tions and de­fense.

In­te­gra­tion of each other’s strengths and re­sources will ben­e­fit the two com­pa­nies, said Wu Lixin, deputy direc­tor of the strate­gic plan­ning re­search depart­ment at the China Coal Re­search In­sti­tute.

Shen­hua can im­prove its coal-dom­i­nated en­ergy mix by ad­vanc­ing into clean en­ergy seg­ments such as re­new­able en­ergy and nu­clear en­ergy, while Guo­dian can ben­e­fit from a pow­er­ful ally in the coal sec­tor, to fend off risks to sup­plies and prices, he said.

On June 2 when Shen­hua Group was last traded on the Shang­hai Stock Ex­change, its shares closed at 19.32 yuan, up 0.53 per­cent. On the same day, shares in Guo­dian Corp closed at 3.49 yuan, up 0.53 per­cent.

Listed sub­sidiaries of the two en­ergy gi­ants also halted trad­ing in shares on June 5, af­ter be­ing in­formed by their re­spec­tive par­ent com­pa­nies about “a sig­nif­i­cant mat­ter con­tain­ing sub­stan­tial un­cer­tainty that is sub­ject to the ap­proval of the rel­e­vant au­thor­i­ties”.

As part of the gov­ern­ment plan to deepen re­form of SOEs to make them leaner and health­ier, the Sta­te­owned As­sets Su­per­vi­sion and Ad­min­is­tra­tion Com­mis­sion has planned to re­duce the num­ber of cen­tral SOEs to un­der 100.

The State Coun­cil has al­ready ap­proved the merger of China Na­tional Ma­chin­ery In­dus­try Corp and tex­tile gi­ant China Hi-Tech Group Corp in June, re­duc­ing the num­ber of cen­tral SOEs to 101.

Con­tact the writ­ers at zhengxin@chi­nadaily.com.cn roles in their re­spec­tive sec­tors, were re­garded as “sys­tem­i­cally i mpor­tant” and were in­cluded in the MPA frame­work.

Their debt-to-as­set ra­tio, liq­uid­ity, pric­ing, as­set qual­i­ties, debt risks and lend­ing poli­cies are as­sessed by the cen­tral bank.

Xue Hongyan, direc­tor of the Sun­ing Fi­nan­cial Re­search In­sti­tute, the re­search arm of one of China’s largest fintech ser­vice providers, said con­sid­er­ing the def­i­ni­tion of “sys­tem­i­cally im­por­tant” ser­vices and the mar­ket size of all fintech busi­nesses, third-party pay­ment ser­vices and P2P lenders are most likely to be­come the first to be reg­u­lated un­der the MPA frame­work.

“The PBOC move … is ac­tu­ally a good sign for the fintech mar­ket be­cause reg­u­la­tion in­di­cates recog­ni­tion of im­por­tance, and MPA, a midto long-term reg­u­la­tion frame­work, in­di­cates that short-term risks are well han­dled,” said Xue.

Ma Juan, a credit busi­ness man­ager with Bank of Shang­hai, said the widely held view is that the P2P mar­ket’s lend­ing al­most equals that of main­stream or tra­di­tional lenders.

“I don’t need to name any spe­cific provider. But we all know that the com­bined mar­ket size of top three play­ers in the peer-to-peer lend­ing mar­ket, and the top two play­ers in third-party pay­ments could eas­ily ex­ceed 1 tril­lion yuan ($148.8 bil­lion),” she said.

Ac­cord­ing to Home of P2P Lend­ing, an on­line in­for­ma­tion provider fo­cused on the P2P space, China has more than 2,000 on­line lend­ing plat­forms whose com­bined trans­ac­tion value ex­ceeds 1 tril­lion yuan. Monthly in­flows are some­where be­tween 30 bil­lion yuan and 50 bil­lion yuan.

The com­bined trans­ac­tion vol­ume in China’s third-party pay­ment mar­ket was 35 tril­lion yuan in 2016, and is ex­pected to more than dou­ble by this year-end to sur­pass 70 tril­lion yuan, ac­cord­ing to Analysys In­ter­na­tional data.

The PBOC re­port said cur­rently some providers of on­line fi­nan­cial ser­vices lack “self-reg­u­la­tion”, while some are un­der­qual­i­fied and are too weak to man­age fi­nan­cial risks.

Yang Tao, re­searcher and fintech ex­pert with the China Acad­emy of So­cial Sciences, said that strength­en­ing reg­u­la­tion was in­evitable as the fast growth of this seg­ment en­tailed more re­spon­si­bil­i­ties, mak­ing com­pli­ance key to suc­cess.


A man pays us­ing his mo­bile phone on a train from Tian­jin to Qin­huang­dao, He­bei prov­ince.

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