The Study Of Development And Supervision Of The Financial Holding Company In China

The operation of domestic financial institutions has transformed in terms of the cooperation and joint across different business lines due to the survival pressure not only coming from the separate system but also from China's entry into WTO, which will render them at a disadvantage to compete with foreign counterparts.The financial holding company is a kind of centralized financial organization under which the parent company holds the shares of two or more financial institutions, each son company pursuing its individual business within the separate system.In view of the theory and practice of the international financial holding company, it has the potential advantage of economics of scale and scope, which facilitate the financial innovation across the different business lines. It can also lessen the systematic risk by diversification and insulate risk contagion through the Chinese Wall between different son companies. Based on empirical studies and the experience of separate system in the past two decades, it is rather proper to introduce the financial holding company to China .The paper analyses how the financial holding company has taken root from the macroeconomic and microeconomic perspective.This paper also surveys the institutional evolution of China's financial holding company and divides its history into three stages under the background of the financial market-oriented reform. It analyses the government-leading institutional evolution during the 1980-1995, which forcefully transforms the bank from a consolidated one into a separate one. During 1995-2000 China's financial reform proceeded characterized by the the substitution of the market finance for the government finance. The embryo shape of the financial holding company came to existence in China due to some institutional factors .In 2002,the China's financial company came to surface when the government has chartered the Citic financial holding company.Then from the perspective of financial institutional innovation, the financial holding company in the present stage is characterized by the incremental organizational innovation led by the supervision board and the "the first group" company. This paperpredicts the next stage will be the mode innovation of the financial holding companies through the systemic competition.Based on the prediction of mode innovation Chapter 4 analyses China's mode choice of the financial holding company. The paper suggests in the present stage the industrial holding financial company is not fit for developing considering the potential risk-taking factors. While the bank holding company, security holding company,etc. are the ideal choice. In line with the Chinese financial reform the there are 3 steps in the process of constructing the financial holding company.The focus of the financial holding company is mainly about the risk analysis not only in the United States but also in China. The Citi and Chase Manhattan's involvement in the Enron and WorldCom bankruptcy case warns the Chinese financial holding companies of the special risks of its structure. The paper analyses the risks faced by the Chinese holding company including the insufficient capital, high financial leverage, improper intra-holding-company transaction, and the large sum of money illegal inflow into the stock market.At last the paper discusses the supervision issue of the financial holding company. Concerning the Chinese projected financial supervision system, we adopt a combination of the separate supervision and consolidated supervision on the basis of American umbrella supervision system. Accordingly this paper puts forward some suggestions on the supervision rules.