(Yicai) Nov. 28 -- China has approved the first batch of financial asset investment companies in eight years. Analysts believe they will target small and medium enterprises in key sectors, such as technological innovation, green, and low-carbon, as well SMEs that has special innovative advantage in their own niche sectors.

The first batch of three joint-stock banks that got their AIC approved identified science and technology finance as their core strategic direction, said Yang Haiping, researcher at the Shanghai Academy of Finance and Law. They have also accumulated rich experience in the integrated operation of investment and commercial banking, he added.

On Nov. 23, China Merchants Bank and Citic Bank announced that the Financial Regulatory Administration had approved their AIC subsidiaries to commence operations. The AIC unit of Industrial Bank had already opened earlier this month.

"Sci-tech enterprises are generally asset-light and high-growth, lacking sufficient collateral," a staffer at a joint-stock bank explained to Yicai. "Traditional credit models are constrained by collateral requirements, making it difficult for these high-potential companies to obtain financial support matching their development stage."

As equity investment institutions within the banking system, AICs provide an institutionalized and compliant path for bank funds to enter sci-tech enterprises, the staffer noted, adding that this achieves a breakthrough from restricted to feasible investment, enabling lenders to reap returns as firms grow and better match risks with benefits.

Merchants Bank, Citic Bank, and Industrial Bank share a highly consistent investment philosophy, analysts told Yicai. They are committed to breaking the constraints of traditional credit models through "equity + debt" to provide in-depth support for corporate financing.

The "equity + debt" model not only allows banks to obtain investment returns but also helps them transform their role in the industrial chain to value-creating partners from mere capital providers, said Xue Hongyan, special researcher at Suzhou Commercial Bank.

China approved the first batch of five state-owned banks -- Agricultural Bank of China, Bank of China, Bank of Communications, China Construction Bank, and Industrial and Commercial Bank of China -- to commence operations at their AIC in 2017.

After years of pilot projects led by the above banks, the approval for joint-stock banks to establish AIC subsidiaries indicates that the AIC model has moved from the exploration to the expansion stage.

Postal Savings Bank of China, the only large state-owned bank without an AIC subsidiary in operation, was approved to kick off preparations to establish an AIC last month.

More commercial banks are expected to be approved to prepare for AIC establishment in the future, Lou Feipeng, a researcher at Postal Savings Bank of China, told Yicai.

Editors: Tang Shihua, Futura Costaglione