Saving You Money For Life

The emergence of Chinese corporate entities as major players in the banking and insurance business has, for the most part, been actively encouraged by their government. Blending these two particular industries has raised some concern, however, and provides an interesting example of the problems faced by an economy trying to leapfrog one hundred fifty years of corporate growth.

The Chinese Banking Regulatory Commission has suggested that China’s banks should not set up insurance operations. The Commission Chairman is reported as saying that there are widely different business models and corporate cultures in these two sectors, and there are few successful precedents for banks entering into insurance.

Liu noted that banks operate on the basis of risk control, and their employees have comparably stable and high salaries. Insurance employees gain most of their income from commissions on sales with a low salary base. Two major Chinese business banks have applied to the Commission for permission to develop insurance arms. Neither application has been approved.

While warning against banks moving into insurance, Commission Chairman Liu Mingkang said he is positive on banks moving into investment banking, adding that based on international experience, this kind of corporate combination is easier to manage.

China has been looking to create financial holding companies that engage in operations across a wide range within the financial sector. It sees this as one way to compete with better capitalized foreign firms. China’s central bank has said it wants to remove barriers between the banking, insurance and securities sectors as it is a necessary step for China’s financial reforms. It appears, however, that regulators may have different views on how to remove the barriers between the various sectors.

You can leave a response, or trackback from your own site.