China's financial institutions need to adopt full-service operations to improve competitiveness and better meet the needs of economic development and customers, senior government officials and researchers said Tuesday.

But related laws and regulations need to be in place to help contain financial risks that may arise from the integration of the banking, securities and insurance sectors, they said.

Jiao Jinpu, deputy director of the Research Bureau of the People's Bank of China, the central bank, said financial holding companies should be the path towards integrated operations by Chinese financial institutions, adding this approach avoids violating current laws that stipulate a financial institution can run only one of the banking, securities and insurance businesses.

"I feel it is suitable to seek integrated operations by way of financial holding companies," he told the two-day 1st China Financial Reform Forum that started Tuesday. "That is a result of the status quo of the financial regulatory regime and the financial industry."

Mindful of scandals in past years when financial institutions had nearly limitless freedom in what they could sell, Chinese regulators are gingerly moving back to allowing financial institutions to enter each other's territory to enhance competitiveness, but have not reached on any final decisions.

Financial holding companies, where firewalls are installed in subsidiaries to prevent risk from jumping from one sector to another, are seen as a practical way to realize integrated operations, although there is also opposition. A few de facto financial holding companies, such as CITIC Group, have already been established.

Under the current regulatory regime, financial institutions can move further by exploring "anything that is not forbidden by law and does not stand on their balance sheets," he said, adding breakthroughs can hopefully be achieved in areas such as asset securitization.

Wei Yingning, vice-chairman of the China Insurance Regulatory Commission, underlined the benefits of integrated operations for insurance companies, saying restructuring into financial holding companies or financial groups will help reduce operational costs and improve efficiency, and subsequently enhancing the core competitiveness of insurers.

The reason Chinese insurers are suffering a setback in bancassurance is, not having equity links with the banks, they had to pay high commissions to win the distribution channels at bank branches, he said.

(China Daily April 27, 2005)