Quick Take: Government to List Firms Banned From Investing in Financial Sector

As China continues its campaign to rein in financial risks, the government is planning to draw up a “negative list” that will name companies deemed too risky to be allowed to invest in the financial sector.

The State Council and the State-owned Assets Supervision and Administration Commission (SASAC) laid out at a meeting on Tuesday the principles and the criteria for inclusion on the list, which will be compiled by the end of the year, according to a report in the official China Securities Journal.

Among those prohibited from making new investments in the financial sector will be companies whose main businesses are unprofitable, those with high asset-to-liability ratios, or those who have existing financial operations that are high-risk or whose role in supporting the company's core activities is unclear.

Reducing financial risks, and making sure the financial sector serves the real economy rather than feeding speculation in areas that don't support real activity, are top government priorities. Policymakers are also trying to curb investment by non-financial companies in the financial sector because of the abuses that have often resulted from their involvement.

The Tuesday meeting also called for controlling and lowering risk in a range of other areas such as debt, the environment, and the overseas operations of Chinese companies, the newspaper reported. Management of public private partnership (PPP) projects, also needs to be strengthened, the meeting agreed. The Ministry of Finance has heightened scrutiny of PPP, where private companies are invited to invest in infrastructure projects, amid evidence that many local governments are using them as vehicles to take on additional off-budget borrowing.

Contact reporter Ke Baili (bailike@caixin.com).