25 Financial Institution Groups You Need to Know

Overview of China’s Major Financial Institutions

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China’s major financial institutions comprise 25 types, includingBanks, trust companies, financial leasing, consumer finance, financial asset management, bank wealth management, money brokerage, loan companies, third-party payment, credit reporting, securities, futures, public mutual funds, fund subsidiaries, fund sales, private equity funds, insurance, insurance brokerage, insurance asset management, financial leasing, pawnbroking, factoring, micro-lending, financing guarantee, regional equity trading markets etc.

The regulatory authorities involved in the approval and filing processes for these financial institutions include the People’s Bank of China, the State Administration of Foreign Exchange, the National Financial Regulatory Administration, the China Securities Regulatory Commission, and local financial regulatory bureaus, among others. These financial institutions and regulatory bodies together form the foundation of China’s financial system.

This article will categorize and organize the aforementioned financial institutions by regulatory authority, providing a reference for financial professionals as well as enterprises and individuals in need of financing.

1. Financial institutions supervised by the local financial regulatory authority

Financial institutions under local financial supervision typically do not hold a financial license; instead, they are issued with a registration certificate or an approval document by the regulatory authority. The local financial regulatory authority is responsible for the day-to-day supervision of microfinance companies, financing guarantee companies, regional equity markets, pawnshops, financial leasing companies, commercial factoring companies, local asset management companies, and financial factor markets that are registered and established within its jurisdiction.

1. Microfinance company

Compared with banks, microfinance companies do not accept public deposits; their primary funding source is shareholder investment, though they may also borrow from banks or issue bonds. Additionally, the amount of each loan is typically below RMB 1 million, and the loan approval process is more convenient and faster; however, interest rates tend to be relatively higher, and loan terms are shorter.

Compared with private lending, microloans are more standardized and carry relatively lower interest rates.

Therefore, loans from microfinance companies are better suited to meet the short-term funding needs of small, medium, and micro enterprises as well as individual business households.

2. Financing Guarantee Company

Financing guarantee refers to an arrangement whereby a guarantor, in agreement with creditors such as banks, assumes the contractual guarantee obligations under the law when the guaranteed party fails to perform its financing-related debt obligations to the creditor.

Guarantee companies do not directly lend funds to enterprises or individuals; instead, they provide credit enhancement for small and medium-sized enterprises that do not meet the lending criteria of banks and other financial institutions, enabling these SMEs to obtain loans more easily.

3. Pawnshop

A pawnshop, also known as a pawnbroker or lending house, is a financial institution that combines both financial and commercial functions.

Pledging is characterized by its short-term nature, flexibility, and streamlined procedures; the primary items pledged are movable assets such as luxury watches and electronic devices. Therefore, compared with banks and microfinance companies, the financing amounts they provide are relatively smaller, typically ranging from a few thousand to several hundred thousand.

4. Financing Leasing Company

Financial leasing refers to a situation in which the lessor, based on the lessee’s specific requirements for the leased asset and its choice of supplier, finances the purchase of the asset from the supplier and leases it to the lessee for use, with the lessee paying rent to the lessor in installments.

Finance leasing combines financing and trade; due to its dual nature of financing and asset provision, when the lessee fails to make timely rental payments, the leasing company may repossess and dispose of the leased asset. Because the financing process places relatively low requirements on a company’s creditworthiness and collateral, it is particularly well-suited for small and medium-sized enterprises. However, financial leasing involves fees such as handling charges, insurance premiums, and lease payments, with the principal repaid annually. Although the nominal interest rate is relatively low, the effective annualized interest rate typically exceeds 10%.

5. Commercial factoring company

In simple terms, commercial factoring is a form of accounts receivable financing, whereby the borrower transfers its accounts receivable to a factoring company in order to obtain funds in advance.

Commercial factoring is suitable for enterprises with limited fixed assets but large accounts receivable and long payment cycles.

6. Local Asset Management Company

Local asset management companies refer to asset management or operating companies established or authorized by the people’s governments of provinces, autonomous regions, and municipalities directly under the central government in accordance with the law. There is no essential difference between local asset management companies and financial asset management companies; both primarily engage in the business of managing non-performing assets transferred from banks and other financial institutions.

7. Regional equity trading market

A regional equity trading market is a private placement market that provides equity and bond transfer and financing services for enterprises within a specific region, and it constitutes an important component of China’s multi-tiered capital market.

Regional equity trading markets play a positive role in facilitating equity transactions and financing for enterprises, particularly small, medium, and micro-sized businesses; encouraging technological innovation and activating private capital; and strengthening support for the weaker segments of the real economy.

2. Financial institutions supervised by the China Securities Regulatory Commission

The China Securities Regulatory Commission (commonly referred to as the “CSRC”) is a department under the State Council, at the ministerial level. The China Securities Regulatory Commission has established 36 securities regulatory bureaus across provinces, autonomous regions, directly administered municipalities, and cities with separate planning status, as well as the Shanghai and Shenzhen Securities Regulatory Commissioner Offices. The China Securities Regulatory Commission (CSRC) oversees securities, futures, public mutual funds, fund subsidiaries, fund sales, private equity funds, and other related entities.

1. Securities company

As of October 2024, China has a total of 148 securities companies. Based on their ultimate controlling shareholders, these firms can be categorized into state-owned enterprises under central government control, local state-owned enterprises, private enterprises, and foreign-invested enterprises. China’s securities firms are numerous but not particularly strong; only CITIC Securities has total assets exceeding RMB 1 trillion, while nine firms have assets in the RMB 500 billion to RMB 1 trillion range. Not a single firm has achieved revenue of RMB 1

00billion.

Leading Chinese securities firms such as CITIC Securities, CICC, and Guotai Junan hold a substantial share of the domestic market; however, we still lack internationally renowned securities firms on par with Goldman Sachs or Morgan Stanley, and our influence in the global securities market remains relatively limited.

The primary business lines of a securities company include investment banking, brokerage, proprietary trading, asset management, and margin financing. Investment banks primarily engage in the underwriting and issuance of stocks and bonds, as well as financial advisory services such as mergers and acquisitions and corporate restructuring. To put it simply, brokerage services provide us with the settlement channels and services needed to buy and sell stocks.

Proprietary trading primarily refers to the company’s investment activities. Asset management business primarily involves managing clients’ investments. Credit services include margin financing and securities lending, providing clients with access to funds. Among the five core businesses of a securities firm, brokerage is directly related to individual investors, while investment banking primarily provides services such as equity and bond financing, as well as asset restructuring, to medium- and large-sized enterprises.

In financial theory, equity financing is the most expensive form of funding in the long run. However, due to the lack of a well‑established dividend policy and an effective shareholder‑sell‑off mechanism, going public has become a means for some companies or their de facto controllers to raise capital. Most bonds in the securities market are unsecured, requiring no collateral and incurring fewer implicit costs, which may result in lower effective costs compared to bank loans.

2. Futures company

As of October 2024, China has a total of 148 futures companies. From January to June 2024, the cumulative trading volume of the national futures market reached 3.46 billion contracts, with a cumulative turnover of RMB 281.51 trillion. Futures companies recorded total operating revenue of RMB 17.98 billion and net profit of RMB 3.

84billion.

The primary business activities of futures companies include commodity futures brokerage, financial futures brokerage, futures investment consulting, and asset management. Commodity futures are futures contracts whose underlying assets are physical commodities such as oil, gold, and soybeans. Financial futures are standardized, legally binding contracts traded on financial markets whereby the parties agree to buy or sell financial instruments such as currencies, interest rates, and stock indices at a specified future date and price.

Compared with securities firms, brokerage business is the primary source of revenue for futures companies, yet their business scope is relatively narrow. Moreover, the futures market is smaller in scale; the combined total revenue of 148 futures companies amounts to roughly two-thirds of that generated by CITIC Securities alone. Due to the futures market’s guiding influence on spot market prices, futures companies remain highly important financial institutions.

For companies whose business involves commodities such as oil, gold, copper, aluminum, wheat, or soybeans, or for those engaged in international trade that frequently requires foreign-exchange settlements, it is essential to monitor the futures market and even engage in futures trading. This allows them to lock in future prices at a relatively low cost, thereby avoiding substantial losses caused by significant price fluctuations.

To be continued...

ZHIHENG

Attorney Profile

ZHI HENG 

Liu Taibo

Full-time lawyer at Zhiheng (Chongqing) Law Firm

Areas of Expertise:

Investment and Financing

Asset Restructuring

Debt Risk Resolution

Business Dispute

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