(Yicai) June 6 -- The new prohibition on China's centrally administered state-owned enterprises from setting up, acquiring, or taking new stakes in financial institutions is intended to keep state funds focused on the real economy and prevent them from “going virtual,” according to experts.

On June 3, the State-owned Assets Supervision and Administration Commission told the 97 SOEs under its authority that in principle they should refrain from participating in or increasing investments in financial institutions that offer minimal benefits to their core businesses and have high spillover risks.

The move signals that the government adheres to the principle of separating supervision on state-owned financial capital and industrial capital to prevent the transfer of risk between the two sectors, said Wu Gangliang, a researcher at the China Enterprise Reform and Development Society.

Centrally managed SOEs should focus on the real economy and their main businesses and be strategic, long-term, and patient capital, Wu added.

The non-financial SOEs should concentrate on their primary businesses, said Zhou Lisha, research director at Tsinghua University's Institute for SOEs. This will benefit their optimization and restructuring and help improve their operating efficiency and profitability, Zhou added.

The decision to limit SOE involvement in financial institutions is an inevitable requirement to highlight their core functions, noted Zhu Changming, a partner at Sunshine Law Firm and head of the center for SOE mixed-ownership reform.

They shoulder the important responsibility of promoting the real economy’s high-quality development, Zhu said, adding that their participation in financial business must be consistent with the characteristics of their business and match their core business needs, rather than blindly developing, let alone engaging in, high-risk financial business.

The SASAC held some meetings last year on risk governance at central SOEs' financial businesses, especially trust, financial, and commercial factoring companies and private equity investment funds, with many companies spinning off or selling their non-core financial assets after that.

China Datang, for example, transferred its 13.5 percent stake in Fudian Bank, while a subsidiary of the Aviation Industry Corporation of China sold its 4.1 percent of Jiangsu Baoying Rural Commercial Bank.

Editor: Martin Kadiev