China's central bank said that it will encourage commercial banks to move into insurance and securities as part of a drive to break down barriers in the financial sector.
The People's Bank of China said commercial banks will be encouraged to expand into non-banking business within their current operational structure. Eventually some qualified banks will be selected to conduct insurance and securities operations on a trial basis.
Present rules generally keep the banking, insurance and securities sectors separate out of fear that problems in one area will drag down healthy operations elsewhere. But with the opening of the market to big foreign competitors, Beijing has been rethinking its strategy.
Commercial banks will also be encouraged to set up fund management companies and carry out more yuan derivative products. Currently, only the Industrial and Commercial Bank of China (ICBC), China Construction Bank and Bank of Communications have gained approval to set up fund management companies.
The central bank also said that the regulators are currently studying plans for reform of the nation's three policy banks and four asset management companies (AMC). The central bank said it has set final restructuring plans for its four AMCs -- Oriental Asset Management Co, Greatwall Asset Management Co, Huarong Asset Management Co and Cinda Asset Management Co. Under the plans, these companies will still focus on their initial business of disposing of non-performing assets, but they will be allowed to conduct investment banking business.
The central bank repeated in the report that it will speed up the reform on the Agricultural Bank of China and Agricultural Development Bank of China.
Compared to banking sector, the country's securities sector is more conservative and less open to foreign capital, the central bank said. China will consider allowing more foreign investors to enter the securities sector at a future date but it noted that domestic interests must hold ultimate control.
The central bank said that it is considering allowing listed companies issue China depositary receipts to meet market risk management needs, and it may allow arbitrage trade between mainland China and Hong Kong.
A growing number of companies have issued shares on the Hong Kong and mainland markets. Among them are the Bank of China, the Industrial and Commercial Bank of China and the China Merchants Bank.
Earlier this year, the Bank of Communications (BoCom) said it plans to issue China depositary receipts. The central bank said that cross-border arbitrage trade will be helpful to reforming the country's capital account and foreign exchange management. Due to capital controls, investors are not able to arbitrage price differences between shares listed in Hong Kong and on a mainland stock market.