A new framework to manage the Chinese central government's interests in financial institutions like banks, insurers and brokerages is likely to be set up by early next year.  

The efficient and market-oriented management of 40 trillion yuan ($5 trillion) in state-owned financial assets will be on the agenda of this month's National Finance Conference which will chart the country's monetary course for the next few years.

"If it's decided that the new framework will be established, it'll be in place no later than March 2008," said an official close to the conference. 

The conference is likely to discuss whether China should set up an independent government investment company or an administrative body like the State-owned Assets Supervision and Administration Commission of the State Council, which is an administrative body set up in 2003 to manage non-financial assets.

A Ministry of Finance official proposed that the ministry's Finance Department, which currently functions as a management body of financial assets, be at the core of any structure.

However, some analysts favor the setting up of a government investment company by restructuring Central Huijin Investment Co Ltd. This investment body was set up in 2002 with a mission to reform state-owned banks burdened with a high ratio of non-performing loans.

"China should set up an investment body directly under the control of the central government by restructuring Central Huijin," said Yi Xianrong, a researcher with the Chinese Academy of Social Sciences. 

"A commercialized institution operating on sound market principles is much more efficient than an administrative body that is easily influenced by government whims," said Piao Yongxiang, a researcher with the central bank. .

Central Huijin has invested 5 trillion yuan ($641 billion) in 20 state-owned financial institutions including major commercial banks and a dozen brokerages. However, the company was originally set up as a policy-directed body with the aim of injecting capital into state-owned banks during their share restructuring.

A few officials and analysts believe that the example of Singapore-based Temasek Holdings, which were created in 1974 as an investment company under the full control of the island state's government, could be emulated.

"We should reform Central Huijin following the model of Temasek Holdings to clarify the company's rights and responsibilities in order to make sure it has good corporate governance," Wu Xiaoling, vice-governor of the central bank, said at a forum held in Beijing.

The National Finance Conference is held every five years. At the last one held in 2002, the government agreed to set up a reform team led by the central bank to restructure the country's Big Four state-owned banks. Central Huijin was later set up with net assets of US$45 billion to inject capital into the banks.

(China Daily January 9, 2007)