Mixed-business Model of Chinese Finance is Heightening Risk: Ex-MOF Head Lou Jiwei

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One of China’s senior-most politicians says that the country needs to bring an end to the mixed-business model prevalent in the finance sector due to the high levels of risk it entails.

Lou Jiwei (楼继伟), chair of the National Council for Social Security Fund and formerly China’s finance minister, said that excessive adoption of the mixed-business model by the finance sector had caused a range of problems that had served to concentrated risk, continually raise the cost of funds, as well as exacerbate the financing difficulties of the real economy.

“From my perspective, at present this type of grand mixed-business model is absolutely wrong and will trigger high risk,” said Lou during a speech given at an event held by the China Economists 50 Forum (中国经济50人论坛) to celebrate the 40th anniversary of Chinese economic reform and opening.

Lou said that China needs to continue to deleverage and reduce risk, as well as give greater consideration to what kind of capital markets and finance sector business models can better service the real economy.

The former MOF head also called for Beijing to accelerate the allocation of state-owned assets to the social security fund system in order to reduce payment of fees.

In November 2017 the State Council issued the “Implementation Plan for the Transfer of Some State-owned Capital to Supplement Social Security Funds” (划转部分国有资本充实社保基金实施方案), proposing the selection of certain central state-owned enterprises and provinces for trials.

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