Three Chinese AMCs to Merge into CIC Amid Financial Industry Risks

Summary

  • China Cinda Asset Management, China Orient Asset Management and China Great Wall Asset Management, three asset management companies (AMCs), are incorporated into the China’s Investment Corporation (CIC).
  • The Ministry of Finance, which is the main shareholder of these AMCs, has taken this action to separate its roles as regulator and shareholder of state-owned financial institutions.
  • This move comes at a time when there are regulatory risks due to poor economic growth, significant local government debt and a crisis in the real estate sector in China.
  • China initially established four AMCs four back in 1999 to contend with bad loans from its major four state banks. However, these AMCs extended their initial roles and became a potential risk to the financial system.
  • CIC was formed by the government in 2007 with a registered capital of $200 billion to manage foreign exchange holdings and seek maximum returns.
  • Although it was renamed China CITIC Financial Asset Management last week, China Huarong was excluded from this merger. Instead, state-owned conglomerate CITIC Group undertook an overhaul of the troubled asset manager in 2021.

Merging of China’s Leading Asset Management Companies

Three major Asset Management Companies (AMCs) in China – China Cinda Asset Management, China Orient Asset Management, and China Great Wall Asset Management are set to be merged into China’s Investment Corporation (CIC), according to a report by Xinhua Finance News. This report, however, was inaccessible on their website as of Monday afternoon.

Largest Shareholder

The significant stakeholder of these three AMCs is the Ministry of Finance. This move aligns with the government’s commitment to distinguishing its roles as both regulator and shareholder of state-owned financial institutions.

Transforming Financial Industry

As China’s economy faces sluggish growth, regulators are aiming to curb risk within the $63 trillion financial industry given increasing local government debt and real estate crises.

Asset Management Evolution

In an effort to address bad loans from its largest four state banks, which were on the brink of insolvency, China set up four AMCs in 1999. However, these distressed asset managers grew beyond their initial mandates, sparking risk to the financial system.

Establishment of CIC

In 2007, the government founded CIC with a primary goal of diversifying foreign exchange holdings and seeking maximum returns. The registered capital of CIC is reported to be $200 billion.

Exclusion of China Huarong

Interestingly, China Huarong, despite being christened as China CITIC Financial Asset Management last week, was kept out from the merger.

In conclusion, the financial landscape in China is quickly evolving, and these changes may have an substantial impact on the forex and trading sectors, especially concerning the assets managed by the AMCs.

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