Industrial Capital
Samsung Electronics is setting up a bank, tentatively named “China Samsung Finance Corporation,” in a bid to efficiently manage the capital of local subsidiaries and subcontractors in China. This is the first case for domestic industrial capital to solely establish a financial company in mainland China. The finance corporation is a financial organization that enables operating companies in China to manage the money of its subsidiaries and affiliated corporations and to provide financial management and services. It also allows subsidiaries belonging to the group to extend and receive credit. In order to found the corporation, approval is needed from the China Banking Regulatory Commission (CBRC).
According to Chinese financial authorities and the Samsung Group on July 26, Samsung Electronics has recently requested permission to set up the China Samsung Finance Corporation at the CBRC. The CBRC will go over relevant documents and grant approval as early as the end of this year. The business area of the finance corporation is limited to the business group. However, the financial organization acts like a bank in truth, since it enables its subsidiaries to deposit money and take out loans.
Unlike Korea, which strictly restricts the combination of industrial capital and financial capital, conglomerates can establish a financial corporation that extends and receives credit in China if it obtains permission from the financial authorities. According to data from the Chinese financial authorities, the number of firms’ financial corporations founded in China totaled 174 as of the end of last year. A senior official from the Chinese financial industry said, “A financial corporation is a concept unfamiliar to Korean firms. However, it is common for business groups to set up a financial corporation in China in order to collect the capital of subsidiaries and manage it efficiently. For Samsung, which expands its business to establish a semiconductor plant in Xi’an by investing 7 trillion won [US$5.98 billion], it is little late to establish a financial corporation.”
Once Samsung Electronics completes the foundation of the China Samsung Finance Corporation, the company will be able to manage the capital of its 28 affiliated corporations in China more efficiently. For instance, the company can deposit earnings of Tianjin Samsung Telecommunication Co. in the China Samsung Finance Corporation, and the finance corporation can lend it to Samsung China Semiconductor (SCS) in Xi’an for production facility funds. Since it can also extend and receive credit to Samsung Electronics’ subcontractors in China, domestic banks’ local offices in China are expected to be adversely affected.