Central bank to regulate rapidly growing fintech
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.