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COAMC’s Chairman Wu Yue: Enhance the Ability to Serve the Real Economy

Modern finance is a core system with which the market economy effectively allocates resources and manages risks. Judging from the nature of financial work, its starting point and foothold are serving the real economy. A healthily running financial system can allocate resources the most effective producers and users, better satisfies the diversified financial demands of the real economy and maximize the resource value. At the same time, it is also necessary to effectively manage the potential risks of the resources in the trans-time-and-space allocation and transactions and guarantee the economic and financial security so as to achieve the development goal of stable economic growth. The financial work must follow the general rules of financial development, actively implement the spirit of the 19th National Congress of the CPC, return to its origin under the leadership of Xi Jinping's thought on socialism with Chinese characteristics for a new era and serve the real economy well in a down-to-earth manner.

Actively Defuse Stock Risks, Guarantee the Robust Operation of Financial System

Since the 18th National Congress of the CPC, under the leadership of the Party Central Committee with Xi Jinping as the core, China's financial system has constantly deepened the reform and made innovations on development; the multi-level financial market system has been gradually improved; the financial institutions have constantly improved the ability to serve the real economy, and the ability to forestall risks has been significantly enhanced. Meanwhile, we should also see that along with the increasingly active financial innovation and rapid growth of asset size, the problem of structural imbalance becomes gradually highlighted, and especially a greater imbalance appears between the finance and development of real economy.

In terms of proportion of value added in China's financial industry over GDP, this index has obviously risen since the international financial crisis happened. It has exceeded that in Japan since 2008, and was comparable to that in the USA in 2013, and in the last two years, it has become higher than the major developed economies, such as the USA. However, the rapid expansion of "amount" of the financial industry doesn't totally agree with the demands of the real economy, but causes asset bubble and risk pressure. Firstly, the problem of difficult and expensive financing is still quite common in the real economy. The financial support in such fields as issues of agriculture, farmer and rural area and small and micro enterprises is insufficient for a long time, and the inclusive financial system isn't perfect. Secondly, in the context of macroeconomic downturn and supply-side structural reform deepening, the non-performing assets in the financial and non-financial systems grow rapidly, and the control of the financial system over the exposure of some complicated, sudden and infectious risks is to be enhanced. Thirdly, the financial industry itself is also at the risk-prone high-incidence period, and various latent risks exist. Fourthly, some financial activities lead to serious capital internal turnover. In this case, the chain of funds entering the entity enterprise is greatly lengthened, and the enterprise's financing cost also increases obviously. Even worse, some asset management business makes use of regulatory arbitrage to carry out multi-level nesting, adds leverage to the same business to enlarge the scale, making a lot of funds detained within the financial system, and even possibly completely divorced from the demands of real economy but supported only by the constant rise in asset price. Once the risk spills over, it will pose a threat to the stability of the whole financial system. According to the history of the global financial development, the rudiment, development, growth and high development cannot go without serving the real economy. If the financial industry pushes bubbles to accumulate, the systematic risk will unavoidably lead to financial crisis when the bubbles accumulate to a certain degree, which will cause great losses to the economy and society.

The above fully shows that China's financial system becomes more and more fragile obviously and that the potential risks and hidden danger constantly accumulates, which have seriously constrained the ability of the finance to serve the real economy. If the financial system itself cannot run robustly, it will not be able to serve the real economy well. Therefore, the Party Central Committee makes scientific deployment in time, requires the finance to return to the origin to serve the real economy and place the active prevention and resolution of systematic financial risks at a more important position.

In terms of prevention and resolution of financial risks, China's financial asset management companies have unique advantages. In 1999, to deal with the Asian financial crisis, strip the huge non-performing loans from the State-owned banking system and defuse the systematic financial risks, the State established four financial asset management companies - China Huarong Asset Management Co., Ltd., China Great Wall Asset Management Co., Ltd., China Orient Asset Management Co., Ltd. and China Cinda Asset Management Co., Ltd.. As the professional organizations to prevent and defuse the financial risks, they undertook and disposed the non-performing loans stripped from the four State-owned banks and China Development Bank, and successfully completed the policy tasks assigned by the State. At the same time, they also accumulate rich practical experience in operating the non-performing assets and form unique professional advantages. Since the 18th National Congress of the CPC, the financial asset management companies have accelerated the market-oriented reform and transformation; their business performance has grown robustly; their anti-risk ability has been constantly enhanced; and they have developed to be an important force featured by disposal of non-performing asset in China's financial system. On the whole, the four financial asset management companies have core competitiveness in preventing and defusing financial risks, which are shown in the following two aspects:

Firstly, outstanding advantage in the main business of non-performing assets. The financial asset management companies built up a fortune by disposing non-performing assets. In the process of disposing non-performing assets worth several trillion Yuan, they constantly innovated on the methods and means and explored and optimized business models, which produced a marked effect. Through assistance by capital injection, debt reduction and share transfer, stripping and restructuring, restructuring and freezing debts, trusteeship management and coordinating the government support, these asset management companies conduct intensive operation and value excavation, actively promote non-performing asset securitization and market-oriented debt-to-equity swap under the new situation, and actively and effectively dispose the non-performing assets. They adopt the Group comprehensive operation, form a complete set of non-performing asset disposal strategy and business model which is market-oriented, diversified and comprehensive, and they can take targeted measures according to the actual situation of different enterprises and risk characteristics. For example, for a backbone enterprise that is in trouble temporarily and can restore its market competitiveness by deepening reform and strengthening the internal management, they continue to provide financial support and prevent commercial credit risk from becoming financial risk and social risk based on the principles of risk controllability and commercial sustainability. For a "zombie enterprise", they dispose it in time and accelerate the market clearing by package sale, auction, realization and bankruptcy liquidation. Take China Orient Asset Management Co., Ltd. ("COAMC") as an example. COAMC has accumulatively managed and disposed various non-performing assets worth over 1 trillion Yuan. Under the current new situation, based on the regulatory requirement of "being relatively centralized, highlighting the main business", COAMC further adjusts its business development structure, starts with system establishment, evaluation and motivation, task assignment and guidance and training in an all-round manner, continually increases the investment in the non-performing asset business, enhanced the proportion of non-performing asset business over the company's asset size, makes full use of various professional instruments under to revitalize stock assets and tries to serve the real economy.

Secondly, rich experience in helping risky financial institutions. The financial asset management companies actively accept the entrustment of relevant departments or participate in mandating, clearing or restructuring some risky financial institutions and other types of risky institutions through marketization, including commercial banks, securities companies, insurance companies, trust companies and leasing companies, etc. Take COAMC as an example. COAMC has undertaken the liquidation and closing of Gang Ao International Co., Ltd. and the administrative liquidation of several high-risk financial institutions, including Min Fa Securities, Tinhtic Trust, Fanya Trust and China Science & Technology Trust, and also participated in the restructuring of such institutions as Min Fa Securities and Guangzhou Science & Technology Trust. Through the trusteeship, liquidation and restructuring of risky financial institutions, COAMC plays a role of financial "health physician" because it excludes the important risk points in the economic and financial system in time and effectively prevent the risks from spreading and deterioration. According to the actual situation, it actively helped risky institutions to restore its operation; and with the proper assistance of COAMC, some financial institutions that were ever at risk, including China Insurance, Bank of Dalian, Dongxing Securities and Daye Trust, returned to life again, stepped into a track of benign development and became important pillars of COAMC's diversified comprehensive operation and serving the real economy. The financial asset management companies don't have to include the institutions that restore normal operation with the assistance and restructuring under the Group. For example, after vitalizing China National Foreign Trade Leasing Co., Ltd., COAMC didn't continue to hold the leasing license, but exited at proper time.

In the new era, the financial asset management companies should be braver and better to shoulder heavy tasks, actively prevent and defuse the systematic financial risks, make full use of their own professional advantages to focus on preventing and defusing the risks in the key fields, jointly improve the national financial security defensive line and risk emergency handling mechanism so that the financial system can really serve the real economy.

Give Play to the Advantages of Diversified Operations, Serve the Supply-side Structural Reform

When the financial asset management companies explored the reform and transformation, the State ever clearly required them to follow the market-oriented principle and realize diversified development. In recent years, the four asset management companies have actively carried out commercial reform and transformation, and gradually developed to be full-licensed comprehensive financial service groups; and their businesses cover many fields, including asset management, bank, securities, insurance, trust, micro-finance and credit rating. So far, two of them have been listed overseas, and the other two are introducing strategic investors and actively preparing for being listed. On the whole, all of them have stepped into the track of great-lead-forward development.

The report of the 19th National Congress of the CPC put forward that China will deepen the supply-side structural reform and promote the construction of modern economic system with this as the principal line. The financial asset management companies should give fully play to their comprehensive advantages as full-function and multi-network groups, greatly enhance the financial service level through the collaborative service within the groups, support the quick transformation and upgrading of entity enterprises, help to deepen the supply-side structural reform, accelerate the formation of the virtuous circles between finance and real economy, between finance and real estate as well as within the financial system. As for COAMC, it spares no effort to actively complete the tasks of "de-capacity, de-stocking, de-leverage, reducing cost, improving weak links", which yielded positive results.

Firstly, support de-capacity. COAMC deeply explores the non-performing asset field, actively adjusts the business policy, broadens and expands the transaction authorization to its branch offices, simplifies the examination and approval process, improves the assessment mechanism, and quickly supports such industries as steel and coal to defuse overcapacity and realize off-the-hook development. At the same time, it makes innovations on the acquisition and disposal ways of non-performing assets, develops the "industry M&A + finance" model, supports the merger and reorganization and debt restructuring of enterprises, and vitalizes the enterprises' stock assets. Moreover, it disposes "zombie enterprises" by package sale, auction, realization and bankruptcy liquidation and so on and accelerates the market clearing so as to make precious market room for good enterprises.

Secondly, support de-stocking. In the context of adjustment of real estate credit policy, COAMC actively carries out the deployment of the State Council about "three tasks concerning 100 million people" in the urbanization process, deeply carries out the work of finance supporting de-stocking, strengthens the research on the real estate market, make differentiated business policies for different regions, adjusts and optimizes the business structure, gradually reduces the proportion of real estate business over the stock businesses. Compared to the early 2017, this proportion has reduced by about 10 percentage points, and obvious progress has been made.

Thirdly, support de-leverage. In answer to the national policy, COAMC actively participates in the market-oriented debt-to-equity swap and stably promotes the enterprises to reduce the leverage ratio. For example, COAMC made a market-oriented debt-to-equity swap with a total amount of 2 billion Yuan with Dalian Shipbuilding Industry, a subsidiary company of China Shipbuilding Industry, which thereby greatly reduced the enterprise leverage ratio and financial expenses and relieved the enterprise liquidity pressure. At the same time, it further transforms the management concept, operates the non-performing assets with the investment concept, pays attention to helping vitalize the enterprises in trouble and gradually reduces the leverage ratio and pressure in the process of restoring normal operation.

Fourthly, cooperate to reduce cost. The controlled companies under COAMC, including Bank of Dalian, China Insurance, Dongxing Securities and COAMCI with all licenses in the investment industry, gradually establish a rather good market position and brand characteristics in their own industry. Through strategic planning and management reform, it strengthens the evaluation and motivation, promotes the collaboration of business and resource, realizes comprehensive operation and cross-selling, gives full play to the Group's synergistic effect, meets the increasingly diversified and individualized demands of the customers for comprehensive financial services and helps the customers reduce the financing cost, which is also helpful for the Group to reduce the cost of risk resolution business, such as disposal of non-performing assets.

Fifthly, improve weak links from various aspects and focus on alleviating the imbalanced development in the inclusive finance field. Firstly, greatly develop small and micro financing services. Orient Bangxin Finance Holding Co., Ltd. under COAMC is a State-owned small and micro comprehensive financial service group integrating small loan, small-loan fund and internet finance as a whole, and its market influence and brand effect are increasingly remarkable. Bank of Dalian developed "Tax-based Loan" and supply-chain financial products so as to solve the problem of difficulty and expensive financing for the small and micro enterprises, and through "Linkage of Investment and Loan", it explores the financial service model suitable for small scientific innovative enterprises. To serve the development of small and medium-sized enterprises, Dongxing Securities allocates important strategic resources, and it takes a leading position in the industry in such aspects as NEEQ business, SME set bond and research on SME market value. Secondly, innovatively develop the agricultural insurance, serve the rural revitalization strategy. China Insurance under it has always explored its business in the field of agricultural insurance, and its service offices can be found in all the provinces, cities and counties throughout the country; it really opens the last kilometer to serving peasant households. As of the end of October, 2017, it had accumulatively provided agricultural insurance worth 1,670 billion Yuan for 245 million peasant households. Since 2007, it has accumulatively paid agricultural insurance indemnity as much as over 27 billion Yuan and benefited about 40 million peasant households. It, with practical actions, performs its social responsibility and historical mission of insurance serving the issues of agriculture, farmer and rural area and providing assistance for targeted poverty alleviation. Thirdly, promote the green financial innovation and development. Bank of Dalian provide several convenient financial tools for such green industries as ecological protection, clean energy, energy saving and emission reduction, and comprehensive utilization of resources. Golden Credit Rating actively strengthens the research about influence of environmental factors on credit rating field, and improves the green credit rating and green certificate evaluation framework.

Greatly Strengthen the Internal Strength, Constantly Enhance the Ability to Serve the Real Economy

The financial asset management companies should deeply carry out the spirit of the 19th National Congress of the CPC, the National Conference on Financial Work and the Central Economic Working Conference, constantly deepen their own reform, build up their internal strength, give play to their advantages, promote business innovation, constantly enhance the ability to dispose the non-performing assets, greatly defuse the stock risks in the financial system, comprehensively manage the indigenous risks of the Group, enhance the efficiency of serving the real economy and promote the economy to develop towards high quality. According to the deployment of the Central Government and regulatory requirements, COAMC, based on its basic functional localization, serves the national strategy, makes steady development and transformation in the reform; and grasping the opportunity of introducing strategic investors to be listed, it, according to the standards for modern financial enterprises, constantly improves the corporate governance structure, adheres to the "asset management +banking & insurance" driving strategy, constantly improves the operational mechanism, business model and motivation and restriction mechanism, actively adapts to the new changes and new demands of non-performing asset market, actively plays the roles of national counter-cyclical management tool and "safety net" and "stabilizer" of financial system, and tries to enhance the ability to serve the real economy.

Firstly, make a sound corporate governance structure. In the corporate governance structure, COAMC further strengthens the leading position of the company's Party Committee, really gives play to the Party Committee's functions of "setting direction, managing overall situation, guaranteeing implementation", properly divides the responsibilities and authorities of the Party Committee and the company's "Shareholder Meeting, the Board of Directors, the Board of Supervisors and the Senior Management" to achieve scientific combination and organic unity. By introducing strategic investors and being listed, it optimizes the equity structure, improves the supervision and assessment system, strengthens the standard management over the controlled companies and improves the quality of information disclosure. 

Secondly, make and implement the Group's mid-and-long-term strategic development plan. In the current new regulatory context, COAMC should optimize the structure, meet the requirements of "being relatively centralized, highlighting the main business", make clear the functional localization of the parent company and the controlled companies, really enhance the Group's collaboration capabilities and better serve the real economy. It should consider the advanced enterprise in the industry as a benchmark, optimize the capital planning and allocation, increase the investment in the non-performing asset business, make the asset management section stronger and bigger, enhance the business proportion and capital utilization efficiency. 

Thirdly, strengthen the internal delicacy management of the Group. It greatly pushes the internal management of the Group to a new stage, improves various management systems and management methods, optimizes the motivation mechanism, and makes dynamic evaluation and timely adjustment according to the environment change. It strengthens the control and prevention of such key risks as credit risk, liquidity risk, cross risk and concentration risk, and enhances the comprehensive risk management ability. According to the principle of penetration management, it carries out access control, financial control, legal control and IT system control over the controlled companies, regardless of their level, strictly standardizes the internal transaction within the Group and related transactions, implements the requirement of risk isolation and ensures the company develops in a sustainable, compliant and robust manner.

Source: China Finance

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