China plans to regulate financial giants

China’s central bank is placing new regulations on the financial sector to tame runaway growth, beginning with five conglomerates, including Ant Financial Services Group.

Ant Financial, the world’s most valuable financial technology start-up, retail and property giant Suning Commerce Group and three government-backed firms — China Merchants Group, Shanghai International Group and Beijing Financial Holdings Group — will face stricter capital-reserve requirements and risk-management rules under a pilot programme, according to the official Xinhua News Agency.

The new rules are expected to be rolled out for all financial holding firms during the first half of 2019, Xinhua said. Policymakers appear determined to move ahead with reining in privately owned financial behemoths that expanded aggressively in recent years. Analysts say they are concerned about ensuring stability in the broader economy and protecting the state-owned banking system.

The Peoples Bank of China (PBOC), in its annual “China Financial Stability Report” published on Friday, said it aims to cool rampant growth of companies operating in at least two financial sectors; to prevent systemic risks; and to clean up dubious activities that have harmed investors and worsened capital flight.

The central bank report criticised some nonfinancial firms for “blind entrance” into the financial industry and obtaining various licences in banking, insurance, asset management and payments without employing senior executives with sufficient knowledge of finance.

The new rules will prevent the use of words such as “finance” or “financial holding” in company names without regulatory approval. Firms will need to boost capital reserves and avoid putting the same capital pool to multiple uses, as well as meet new debt-to-asset ratio requirements.

The Wall Street Journal previously reported that regulators aim to bring rules for conglomerates in line with those for commercial lenders.

Financial holding firms will also need to make their shareholding structures more transparent, and avoid shuffling funds between units and transactions among related parties, the central bank report said.

Under a lax regulatory environment, a number of nonfinancial Chinese firms were not subject to rules applying to traditional institutions/