On September 14th,media reported an important news: Recently,the State-owned Assets Supervision and Administration Commission (SASAC) made it clear that central enterprises are not allowed to establish,acquire,or newly participate in various financial institutions in principle,and are not allowed to participate in or increase holdings of financial institutions with less effect on the main business and greater risk spillover.

The industry calls this the "Financial Restriction Order."

The report also said that after the "Financial Restriction Order" was introduced,several central enterprises,including Sinochem Capital and China Poly,have started to sell their financial institution equity.

On June 17,2024,Panzhihua Iron and Steel Group Xichang New Steel Co.,Ltd.,a holding subsidiary of Panzhihua Iron and Steel Group under Anshan Iron and Steel Group,listed for transfer 3% of the equity of Liangshan Prefecture Small and Medium-sized Enterprise Credit Financing Guarantee Co.,Ltd.

In July 2024,Sinochem Capital listed for transfer 12.384 million shares of Jiangtai Insurance Brokerage,which is its third time to transfer this part of the equity.

The transfer base price of this equity has been reduced from the initial 55.833 million yuan to 51.517 million yuan in the second time,and now it is further reduced to 50.403 million yuan.

On August 7,2024,200 million shares of Guangzhou Poly Microloan Co.,Ltd.under China Poly Group were listed on Guangzhou Property Exchange,accounting for 100% of the total share capital,with a transfer base price of about 281 million yuan.

A chief financial officer of a central enterprise told the Economic Observer reporter that they are facing a "painful choice": selling financial institution equity now may still get a good price; once the opportunity is missed,it may not be possible to sell in the future.

But selling this main force of profit contribution will inevitably affect the year-end assessment of central enterprises.

Why did the central enterprise "Financial Restriction Order" come out during the economic downturn?

What impact will it bring?

My understanding is that the introduction of the "Financial Restriction Order" may have the following considerations: First,reduce the number of financial institutions,do a large scale,and reduce financial risks.

As the real estate industry appears to be turning a corner and the economy enters a downturn,the risks accumulated by small and medium-sized financial institutions over the years have begun to emerge.

The "China Financial Stability Report 2023" released by the central bank in December last year revealed that a total of 3992 banks participated in the rating last year's second quarter,of which 337 banks were in a "high-risk state" (red zone).

Although the asset scale of high-risk banks only accounts for 1.72% of the country's total,it is also as much as 6.63 trillion.

How to resolve the risks that some financial institutions have encountered?

The best way is to reorganize or inject capital,and to do big and strong is the basic direction.

There are too many financial institutions,which will inevitably lead to high internal competition in the industry.

The result of internal competition is that enterprises with weak competitiveness are keen on taking risks.

Because the professional managers of banks are not shareholders,they consider more the interests of the term,rather than the long-term interests.

The central economic work conference held in October last year has set the tone: to support state-owned large financial institutions to do well and strong,and to strictly control the access standards and regulatory requirements of small and medium-sized financial institutions.

In short,it is to end the situation where small and medium-sized financial institutions are everywhere before,to reduce the number and increase the scale.

Local governments have taken action to merge scattered local small banks: now it is the turn of central enterprises,and the small and medium-sized banks under central enterprises also need to adapt to this big trend.

First,limit the scale,no longer increase; then encourage the sale of equity,concentrate financial resources,and go to the top large banks.

Second,the implementation of the "Financial Restriction Order" is conducive to the implementation of monetary policy,and reduce "wind resistance".

For example: in the past two years,the central bank has been reducing interest rates.

But in the process of reducing interest rates,a series of difficulties have been encountered.

Small and medium-sized banks scattered everywhere,and some banks with a background of central enterprises,due to their small scale,cannot compete with large banks in attracting deposits and expanding business.

What to do?

Can only take risks,that is,high interest deposits.

China has basically achieved interest rate marketization,and small and medium-sized banks are allowed to give customers a little more interest.

But it is not allowed to exceed it,there is a so-called "self-discipline mechanism".

So some small banks play a big edge ball,walking in the gray area.

They secretly give customers high interest rates through manual interest supplements.

Or attract customers with high returns of bank financial management.

How can you get high returns of bank financial management?

It can only be aggressive investment,take risks,such as the current hot government bond market,then add leverage to buy.

Deposit interest rates can't go down,and it's hard for LPR to really implement.

The result is that a large amount of funds are lying flat in banks or bank financial management,not consuming,not investing,not expanding reproduction.

The central bank has just released the financial data for August,and the blue line in the figure below is the year-on-year growth rate of narrow money M1,which continues to fall off a cliff,indicating that companies are converting demand deposits into time deposits or bank financial management,rather than reinvesting.

This is an important reason for the current cold housing market,stock market,and economy.

Only by breaking the interest rate deadlock of deposits can the interest rate be truly reduced,and monetary policy can play a role.

There are fewer small and medium-sized banks,and there are fewer banks playing the edge ball,and a series of monetary policies such as interest rate reduction can be better implemented.

Third,it is conducive to the establishment of a unified national financial market.

The scale of central enterprises is relatively large,and after group operation,they often enter the financial industry and obtain licenses such as banks,insurance,and securities.

When a central enterprise has its own bank,the deposits of enterprises within the group naturally exist in this bank; the group's various insurance,securities,guarantees,leases,trusts,and other businesses are also not out of the field.

Over the past few years,cities have set up urban commercial banks,rural credit banks,local insurance companies,local securities companies,etc.,forming another type of financial fence,and dividing the market through administrative power.

When the fence is everywhere,the national financial market is weakened.

Now the country wants to establish a unified big market,and the financial industry is facing the task of dismantling the fence and "wicker edge".

The "Financial Restriction Order" also conveys the following signals and brings the following impacts: The good days of the financial industry are over.

The most explosive decade of real estate is the period when the banking industry's profits are the highest and the growth is the fastest.

In 2011,the president of Minsheng Bank's "bank profits are too high,and I'm embarrassed to announce it" once triggered heated discussion.

Now the real estate market has entered a bear market,interest rates continue to fall,and the "interest difference" obtained by banks is also continuously shrinking.

In recent years,the presidents can't laugh.

Since last year,a new wave of salary reduction in the financial industry has begun,and the country strongly supports technological innovation,ending the situation of the banking industry's "salary first in the whole society" is very obvious.

This reminds us of history,when the real estate market was the most explosive,listed companies have added real estate business to their main business,and central enterprises have entered the real estate industry; later,central enterprises suddenly withdrew from the real estate industry and concentrated the business in a few central enterprises.

Later,the turning point of real estate appeared.

Now,central enterprises have started to withdraw from the financial industry.

Will the financial industry follow the same path as real estate?

Because the financial industry is too special,the country will not allow a situation similar to real estate.

But the era of the most prosperous and highest salary in this industry is over.

In the future,the official various incentive mechanisms will support technological innovation,especially the breakthrough of core technology.

When central enterprises sell financial enterprise equity,who will buy?

Perhaps some private enterprises will buy,but I believe not many.

Private enterprises also know that the financial industry is not fun,especially not suitable for private enterprises to play.

Therefore,the financial enterprise equity transferred by central enterprises should still be bought by central enterprises,which is equivalent to concentrating the business in a few enterprises.

China's financial industry will enter the era of large enterprises,and the number of small and medium-sized banks,insurance companies,securities firms,etc.

will be reduced by about half.

In other words,China does not need 4,000 banks at all,and 2,000 are already very many.

The central enterprise "Financial Restriction Order" is a good news for large banks,large insurance companies,and large securities firms.

After dismantling various fences,the cake has become bigger.

Cities with more headquarters of top financial enterprises,such as Shanghai,Beijing,Shenzhen,Guangzhou,etc.,can get more benefits.

At the same time,the country values science and technology innovation and suppresses finance,guiding young talents to engage in technological innovation rather than finance,and this policy trend is very clear.

This is also a major benefit for cities with advantages in technological innovation,such as Beijing,Shenzhen,and Hangzhou.

The main battlefield that determines the future fate of cities is the competition of science and technology centers.

Behind it is the competition of the business environment and the vitality of the people.

Cities that rely on traditional and institutional innovation do not have much momentum; cities that rely on market-oriented innovation,especially supported by private enterprises,have a future.

The competition between cities in the financial center has been reduced to a secondary position.

In fact,the United States is also the same.

More than half of the cities with the highest housing prices in the United States are in the science and technology center - California.

In order to compete with California,New York's approach is to become a science and technology center; although California has no intention of competing with New York for the financial center,due to the large number of science and technology enterprises and high earnings,the financial industry in California naturally prospers.

In China,cities with a more obvious "Californian" trend are Beijing,Shenzhen,and Hangzhou.