Enterprise Group Finance Companies Subject to New Rules

By Stephen M. Harner

New regulations governing group finance companies (the Administration of Enterprise Group Finance Companies Procedures, hereinafter the New Procedures) were promulgated on July 27 2004, and are effective from September 1 2004. As with the new rules governing foreign financial institutions promulgated the previous day (see the previous article on page 31), a primary reason for the new issuance was to replace the PBOC with the CBRC as the authorized regulator for targeted financial institutions.

Group finance companies have a relatively short history in China. An innovation of the mid-1990s, these institutions are licensed to operate as "in-house banks" for large enterprise groups. By charter and regulation, their activities are restricted to providing services to officially designated corporate members of enterprise groups. Some 65 group finance companies are licensed nationally. There are several group finance companies in Shanghai, including Baosteel Group Finance Company, Shanghai Automotive Industrial (Group) Company Finance Company, China Eastern Airline Group Finance Company, Shanghai Electrical Group Finance Company, and Jinjiang Group Finance Company. Siemens was the first foreign company to establish a group finance company, and it has been joined by BASF and others.