Bank_Fund banks start in China

Chinese Central Bank said Wednesday that it will allow Industrial & Commercial Bank of China, China Construction Bank and Bank of Communications to be the first lender to set up fund management companies in China, reported Bloomberg.

Two of the three banks, ICBC and Bank of Communications planed to set up joint venture with foreign firms, the China Securities Journal reported citied annoymous sources(in Chinese) on Thursday.

Bank of Communications plans to set up a fund operations with HSBC holding and Pacific Issurance company. ICBC plans to partner with Credit Suisse First Boston Corp. (CSF.YY) and China Ocean Shipping (Group) Co. to establish fund operations, the newspaper said. Bank of Construction has not confirmed the name of the cooperator though it confirmed there will be a foreign strategic investor, the newspaper added.

The regulators, including China' Central Bank, the China Banking Regulatory Commission, and the China Securities Regulator Commission, will grant the approval to the first fund management company by September.

But the lack of related law in China is a problem for the regulators to monitor the operation of those fund management companies set up by banks. The firewall between the daily deposit service and the securities investment has yet to set up. Chen Xiaoyun, the law official in the Central bank, said that the law to regulate the securities investment in the commecial banks are under construction, without giving the schedule, reported Sina.

U.S. met the same questions in 1930s, when the Bank of Act 1933 was introduced to limit commercial banks. Banks could receive no more than 10 per cent of their income from their income from the securities market, a limit so small that many abandoned their business on Wall Street, reported New York Times in 1998. Bank Holding Company Act of 1956 also places restrictions on what bank can do in the insurance businesses.

With the recent bribe scandal in the state-owned banks, investors should expect stronger regulations from the nation, besides internal auditing in banks themselves.