An Analysis of the Choice Between Separated and Mixed Operation

An official with the State Council predicted here Saturday that China's banking sector will inevitably go into mixed operations in the future.

Addressing a meeting on the reform of China's banking sector during the annual conference of Boao Asian Forum, Li Jiange, deputy director of the Development Research Center under the State Council, said that mixed operation is the only option if the country wishes to sharpen the competitiveness of its banks in the context of financial and economic globalization.

China currently bans its banks, securities houses and insurers from venturing into the businesses of each other. Such restrictions will be lifted in a mixed operation system.

China borrowed its single operation system from the West. But the United States had already abandoned that system in 1999.

To prepare the banking sector for the inevitable change, China has started trial practice with mixed operation.

Leading banks in the country, including the Industrial and Commercial Bank of China, the China Construction Bank and the Bank of Communications, have set up their own fund management companies.

According to Li, mixed operation currently takes two forms in China in terms of business cooperation among banks, securities houses and insurers, and the founding of quite a few finance holding companies.

Statistics show that 34 percent of China's insurance premiums now comes from banks acting as agents for insurance companies.

Sharing Li's prediction, Gary Coull, chairman of CLSA Limited, said the profit of Chinese banks now mainly comes from the margin, but mixed operation will allow them to offer new services and disperse their risks.