Having Survived 30 Years, CITIC Now Thrives

(Beijing) – Financing your own bets in the high-stakes world of international finance can result in big paydays, significant losses, or both at different points in time – especially if you are a huge, state-owned conglomerate in China.

CITIC Group has seen it all. And now, after 30 years of highs and lows – including steep losses tied to structured investments just two years ago – the firm is reaping in rewards after posting its best financials ever.
At the end of 2009, total assets of the Group rose to 2.15 trillion yuan and annual net profits were about 19 billion yuan for the year, rocketing the CITIC Group into number 415 of the Global Fortune 500, the first time the Group has been included in the rankings.

Rightfully, Chairman Kong Dan and Vice Chairman-President Chang Zhenming are proud of the firm's accomplishments to date and are looking forward to a possible overseas stock market listing in the future.

In terms of total assets, the CITIC Group is topped only by China's five largest banks – Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, and Bank of Communications – and is ranked number 12 among centrally administered corporations, which includes mega-companies such as China Mobile.

The CITIC Group is the only state group that has consistently pursued diversified investments since its founding in 1979 as  China's first window to the world, welcoming foreign investment in the form of China International Trust and Investment Co., today's CITIC.  CITIC was also the first Chinese corporation to issue bonds overseas, offering 10 billion yen in samurai bonds on the Japanese market in 1982.

Yet the group used an annual average of US$500 million to pay-down debt – a heavy burden – between 1982 and 1993. Few subsidiaries were generating profits back then, and cash flow was severely crimped.

In the early days, CITIC Bank International and CITIC Bank were the group's most important assets. But by 1997, CITIC Bank International was nearly bankrupt. And by 2002, CITIC Bank lacked the capital to cover about 27 billion yuan in bad assets and did not meet China Banking Regulatory Commission regulatory requirements.

As part of a restructuring, CITIC issued 23 billion yuan worth of bonds in two issuances in 2007 and offloaded some real estate, injecting the resulting capital into CITIC Bank. That was followed by a public listing for the bank, which eventually acquired CITIC Bank International.

The overhaul of CITIC Bank led to restructurings of other Group subsidiaries such as CITIC Heavy Industries and CITIC International Financial Holdings.

But another misfortune came when subsidiary CITIC Pacific posted huge losses tied to financial derivatives in October 2008 – just as Chang took the reins at CITIC Pacific and shortly after the Summer Olympics in Beijing closed successfully at a CITIC-financed jewel, the Bird's Nest Stadium.

Today, Kong and Chang are happy to discuss the ups and downs of their years at CITIC. They even shared a few laughs during an interview June 21 at the Capital Club in Beijing. "Your suit pants and jacket aren't matching, again," Kong told Chang. "I don't think I even own a complete suit," Chang jokingly replied.

They can enjoy the calm in part thanks to CITIC's special access to the State Council for project allocations, which has often given the firm a special edge.

The Ministry of Finance is CITIC's major shareholder. Others include the policy bank China Development Bank (CDB) and other key financial institutions.

But even in the worst of times, CITIC has resisted using government funds. Instead, the firm has combined the kind of caution seen at other state-owned enterprises with a market-oriented appreciation for competition and initiative, often raising funds in domestic and international capital markets to accomplish its goals.

On the subject of CITIC's future, Kong and Chang said they think there's still room for growth. The group has abandoned plans to become China's #1 financial holding group in favor of a strategy emphasizing diversification.

Here's more of what they had to say:

Caixin: Inadequate funding has been a longstanding problem for CITIC in the past. Why is the company now so profitable, and what has changed?

Kong: CITIC succeeded in a particular situation. During the economic crisis of 2009, CITIC's diversification model paid off. For example, there was a huge shock to commodity prices between 2008 and 2009. But with China's economic system remaining comparatively stable, financial institutions still had strong profitability, allowing our financial assets to lead the way through the crisis, even though our holdings in the natural resources sector experienced some ups and downs.

CITIC Group as a whole thrived more than some large, centrally administered, single industry SOEs. Over 30 years, our compound annual growth rate has exceeded that of our peers and has been greater than the growth rate of the national economy.

Chang: The fact that CITIC's transformation has been able to reach this point today is mainly due to the success of China's shift from a planned economy to a market economy. It's fundamentally different due to domestic economic growth and development of the domestic capital markets. CITIC Group currently has nine listed companies: Four on the domestic A-share market and five on the international H-share market.

Caixin: Looking at the development process, hasn't CITIC had many special advantages? Especially in terms of industry investment opportunities, overseas bond financing and obtaining financial institution licenses?

Kong: Over three decades, the state has only invested 240 million yuan into CITIC. We haven't received a lot of capital support from the government. CITIC employees take a lot of pride in our "self financed-reform." The Group was able to break out of the mold despite a half-closed, planned economic system at the time. I think we can fairly say that CITIC has contributed to and shared in China's economic growth.

Chang: Each transformation throughout CITIC's history has stemmed from what were issues that threatened our survival at the time. In the early 1980s, CITIC was seen as a quasi-private enterprise, not a state-owned enterprise, because at the time the first CITIC Chairman was Rong Yiren, China's former vice president, and the company needed to compete in a planned economy.

In the early 1990s, we were still in a planned economy, and capital spending required the approval of the planning commission. Corporate financing was difficult, and we could only borrow money from abroad, which we did through various bond offerings. After the 1990s, the Ministry of Finance issued debt abroad directly. Companies had no sovereign credit rating, so they were unable to  issue bonds abroad. By then, the debt of the 1980s was coming due, but the government wouldn't put up any money. So that was a difficult period for CITIC.

Caixin: CITIC Group has maintained a pattern of diversified development. Was this an unintentional or deliberate growth strategy?

Kong: In 1984, I went to China Everbright Group. I came to CITIC Group in 2000. Everbright and CITIC have had similarities over the past 20 years in that they are both interested in participating in industries which are profitable. From the beginning, this was a decentralized approach to development. At the time, CITIC was the government's pilot overseas window to the world, so we started with foreign trade in various goods.

We played a supplementary role in the national economy by being one of the first companies to be engaged in financial leasing, foreign investment and international economic consulting. Domestically, we were involved in real estate, the chemical industry and other industries, gradually becoming involved in nearly all areas of economic development.

What's different between CITIC and Everbright, while some of Everbright's leaders are highly respected, the company lacks management continuity. They often sell off non-financial assets when the market is in a trough. In the end, the State Council ordered Central Huijin to inject capital into and restructure Everbright. CITIC, on the other hand, has maintained a relatively high level of continuity in leadership, which has formed a relatively uniform and successful culture.

Chang: CITIC is a comprehensive company. Investments are made widely, in industries such as in industrials, financials, satellites and other fields. There have been successes and failures in our history. In the planned economy era, there was a notion regarding investment that if we were going to invest in 10 companies, all 10 had to succeed. Now, in the market economy, if we invest in 10 companies and two succeed, they can cover the failures of the others.

Looking back, it seems the fields in which CITIC's investments have failed were mainly affected by rapid technological advances, such as in areas with products such as Kodak film, Jiangnan Cassette Tapes, and others. In international investment, another less successful field was our investment in the paper pulp industry. One reason was environmental requirements, and another was technological advances.

Successful projects included Yizheng Chemical Fiber, International Building, Daxie Island and others. Of course, if time travel were possible, maybe our first choice in 1983 could have been to invest in real estate or power plants.

Caixin: With CITIC's consistently diverse range of businesses, what are your reference points? Everbright Group? Merchants Group? Ping An Group?

Kong: CITIC Group is the only genuine example of the diversified model in China. Domestic comparisons can be made with companies that have financial and non-financial assets. Except for  Merchants Bank, there are only a few other regional "window" companies. In the past few years, we've started benchmarking ourselves against other large SOEs under the jurisdiction of the State-owned Assets Supervision and Administration Commission. We're also benchmarking ourselves internationally, comparing financial data from each of our businesses with that of our competitors – a horizontal comparison that clarifies our advantages and forms the basis of our corporate strategy.

International companies which we compare ourselves to include Cheung Kong Holdings, Hutchison and General Electric. In scale, our sales revenues are about in-line with Hutchison. GE is about five times our size.

Is our goal to become GE? Or, in terms of our ability to operate in the capital markets, do we want to become a Blackstone? My view is this: We shouldn't talk about GE or Blackstone. Let's look at CITIC. Others have a hard time copying our model, and it's hard for us to be like others too.

Testing the Waters

CITIC financial subsidiaries had accounted for more than 80 percent of the group's profits until the mid-1990s.

But in October 1996, the People's Bank of China, the China Securities Regulatory Commission, the Economic Restructuring Committee and other agencies convened in Beijing to discuss how CITIC would balance its decades-long history with a need to comply with a State Council directive to separate different financial businesses into different entities under a new regulatory regime.

The group's financial management style clashed with the 1995 Law on Commercial Banks and a 1997 plan to establish separate operations and oversight for different financial businesses, split up into Banking, Securities, and Insurance.

In 1998, then-CITIC chief Wang Jun wrote Premier Zhu Rongji to propose restructuring CITIC as a financial holding company – CITIC Group. "The reform plan submitted by CITIC will be the company's largest and deepest reform since its establishment in 1979," Wang said.

Three years later, with State Council approval, the central bank released a final edit of the changes proposed by Wang. CITIC would be renamed CITIC Group, becoming the first and only financial holding group in China.

But integration dragged in the years to come. Wang found it difficult to distribute benefits across various divisions. Kong and Chang pick up the story from that point:

Caixin: In 2002, we interviewed Wang Jun about CITIC's plan to build a "Chinese Citigroup."

Chang: Building a financial holding group was the result of several necessities. If CITIC was based in another non-financial industry then, it would have ceased to exist.

At that time, the central government hoped to use CITIC's financial holdings business to push China's financial industry model a step forward. There was a core consensus that CITIC was a window for China's reform and opening policies. CITIC's creation was initiated by Deng Xiaoping. And CITIC would not be allowed to collapse.

The central government basically said that they were willing to assist, but would need our advice on exactly how to structure this help.  Eventually, we proposed a plan and switched to a financial holding company. First, we made sure the holding company did not conflict with any laws. Then we seeked out support from the central government.

Caixin: But this financial holding company integration plan didn't go well. Why have people kept so quiet about the financial group?

Kong: China has never had a corresponding regulatory framework for financial holding groups. There are no specific financial holding company licenses, so Premier Zhu Rongji took the word "financial" out of the CITIC Group name. Back then, the legal framework and institutional governance were handled by separate government entites, under separate regulations.

It now looks like our experimentation in those years bore fruit. Today, no financial institution would propose a model for acting solely as a financial services provider. State-owned commercial banks won't give up their investment banking businesses; their business models have shifted toward commercial banking plus investment banking. In this sense, it's hard to call CITIC's exploration perfect or beautiful, but it was definitely CITIC that pioneered the model.

Caixin: If CITIC wanted to be a financial holding group, would a 100 percent stake in subsidiary companies be a mandatory precondition? Is this why it wasn't possible for CITIC to complete a full integration into a financial holding group?

Kong: There is one clear difference between us and Citigroup and all the others: For historical reasons, the development of our financial institutions urgently needed support from the capital markets in order to survive and develop. There was no time to sit around and wait for a restructuring into an ideal model, and then finally complete a listing.

So in order to allow some organizations to survive and develop themselves, the group supported the listings of some of its subsidiary companies. The first was CITIC Securities, which listed in 2003. Because the Group had limited assets at the time and needed to fully support the bank, the Group's stake in CITIC Securities was gradually diluted.

The second to list was CITIC Bank. In accord with regulatory requirements, if the capital adequacy ratio and other indicators were substandard, the bank would be shut down – its IPO helped to resolve these issues. After these organizations listed, taking into account our joint venture with Prudential, CITIC Prudential Fund Management Co., any cooperation between them would create related-party transactions. American financial holding groups always own a 100 percent stake in their subsidiaries. European banks always have different divisions under them. Compared to these two models, we'll encounter an additional layer of complexity in our operations.

Caixin: What is the status of the financial services business at CITIC Group now?

Kong: Two-thirds of CITIC Group's 200 billion yuan in sales revenue comes from the non-financial sector. But more than 80 percent of profits come from the financial sector. For the foreseeable period, I think the financial sector will continue to be the major contributor to our profits.

CITIC can't go head-to-head with ICBC, ABC, BOC or CCB, but being a financial services "total solution" is CITIC's distinguishing feature. CITIC Securities is the nation's largest brokerage, and CITIC Trust is one of the largest trust companies.

Chang: A company's main business depends primarily on asset allocation. When a group controls assets, the most important thing to do is allocate them in an efficient manner. Now that CITIC Bank and CITIC Securities have listed, aside from preventing our equity from additional dilution, we're unlikely to put more assets into the financial sector because we've reached our market value targets. In the future, we'll allocate more capital to non-financial industries. 

Caixin: CITIC Securities has made two attempts to form international partnerships. One was to cooperate with the American investment bank Bear Stearns, and the other was a joint-venture plan with CLSA. Could you tell us more about these?

Kong: We did long-term due diligence on Bear Stearns but didn't foresee the financial crisis deteriorating to the level that it did. Some people say we dodged a bullet, but at the time our plan was to exchange only a small proportion of shares, only 5 percent. Everything was steadily progressing when the financial crisis interrupted the process. But that won't change our established strategy.

The most recent action has been with CLSA Asia-Pacific Markets. It should be said that the situation is in flux. Financial and equity arrangements aren't the most important thing. What's more important is the formation of synergies moving forward. I'm cautiously optimistic.

The CITIC Pacific Lesson

CITIC was supposed to be celebrating its 30-year anniversary in October 2009 when dark clouds formed: CITIC Pacific posted huge derivatives losses.

More than corporate lineage was involved. CITIC Pacific founder Larry Yung is the son of CITIC founder Rong Yiren. And CITIC Pacific was originally the group's most important platform in Hong Kong and the most internationalized subsidiary.

Yung was eager to increase his holdings in CITIC Pacific back in 1996, so he repeatedly went to Wang Jun asking for support. Wang ignored domestic pressure and sold equity to Yung and other managers for HK$10.8 billion.

The deal kept CITIC stable during the Asian financial crisis in the late 1990s. But Yung had a personal crisis that stemmed from a loan he got in late 1996 from HSBC, using his personal stake in CITIC Pacific as collateral, to buy the additional stake from CITIC Pacific.

Just two years later, CITIC Pacific's share price tumbled, Yung's assets shrank and HSBC demanded that he provide collateral for his loan. CITIC extended him a helping hand, using HK$1.9 billion to acquire shares of CITIC Pacific on the secondary market, adding 4 percent to its holdings of the company, and CITIC Bank handed Yung a HK$1 billion loan. CITIC Pacific's share price then rose 30 percent.

But by Fall 2008, CITIC Pacific was again in crisis. Rong announced that to hedge against currency bets in an Australian iron ore project, CITIC Pacific had entered a number of foreign exchange derivatives contracts with 13 foreign banks that had resulted in a potential loss of as much as HK$14.7 billion. During the ensuing period, CITIC Pacific's losses widened to HK$110 million per day.

Yung again turned to Beijing for help. On November 1 2008, CITIC settled on a plan to resolve CITIC Pacific's problem: First, immediately provide CITIC Pacific with US$1.5 billion in standby funds. Afterward, CITIC Pacific was to issue additional shares to CITIC for HK$8 per share to replenish its foreign exchange losses. After the additional issue, CITIC's stake increased to 57.6 percent.

At the same time, the CITIC Group undertook futures contracts at a rate of AU$1 to US$0.70, while CITIC Pacific paid CITIC about US$1.18 billion. This move transferred the derivatives exposure to the Group.

Subsequent changes in the exchange rate between the Australian and U.S. dollars since then have allowed CITIC Pacific shares to rebound. And by last August, the CITIC Group booked profit for CITIC Pacific shares of US$3billion. The storm had blown over.

Yung paid a heavy price, though, resigning as Chairman of CITIC Pacific, while the CITIC Group took over some of CITIC Pacific's assets. Beginning in April 2009, the assets were injected back into CITIC Pacific.  Chang, who had become CITIC Pacific chairman a few days earlier, then sold some of the company's non-core assets, raising nearly HK$10 billion. The tale continues:

Caixin: Why did CITIC Group rescue CITIC Pacific over and over again? Some say this was a source of internal disputes.

Kong: Although at the time CITIC Group held only a 29.4 percent equity stake in CITIC Pacific, the company would have fallen into bankruptcy if nothing had been done. CITIC Group would also have been greatly affected, first in terms of financial losses and, second, with a loss of reputation. The latter could have quite possibly been worse than the former. The State Council also instructed CITIC Group to take responsibility for CITIC Pacific.

Chang: Saving CITIC Pacific was a one-time occurrence. It was done because the company's assets were of good quality, not due to a lack of options.

CITIC Pacific's development has brought a number of strengths to the group. In Hong Kong, it has issued both red-chip and blue-chip shares. The business structure is optimal, and there are some high-quality assets in the company. It once had after-tax net profits of more than HK$10 billion, at that time accounting for a significant portion of Group earnings.

CITIC Pacific has completed many projects and, since its founding in 1990, has been quite profiable.

When it began, there was a lot of controversy domestically because Hong Kong had still not been returned to China, so it was seen as handing Chinese capital to England. Looking back, these investments in CITIC Pacific were the right move. Making a large contribution to Hong Kong's stability and financial markets shows that Yung's vision was impressive.

Caixin: With the CITIC Pacific derivatives crisis now completely exposed, is the company still in danger? How is CITIC Pacific's progress going with its controversial Australian magnetite project?

Chang: This mine is the world's largest magnetite mine, with annual iron ore processing tonnage that's four times that of China's annual iron ore processing capacity. In theory, the bigger these assets, the better. CITIC Pacific holds a 100 percent stake in this project. Moreover, this is the first Australian mine to be fully owned by a Chinese company – completely unprecedented. Estimates for next year are that annual production will reach 27 million tons and that total investment will be AU$5 billion.

Caixin: In the future, how can CITIC Group prevent a repeat of the risks taken on by CITIC Pacific?
Kong: Rescuing CITIC Pacific was important for CITIC Group, but we can't let it happen again. We do need to minimize the likelihood of that prospect – and that's going to be a hefty chore.

After the 2008 CITIC Pacific crisis, we set up a risk management department that oversees risk control processes from the Group down to subsidiaries. In the independent development of subsidiaries in the past, there wasn't enough control from the Group perspective.

Another important thing is to control the influence of risk so that we don't let a particular loss swallow the whole organization. The toxic assets of some Western financial institutions consumed years of accumulated profits and in some cases lead to bankruptcy for corporations. We can't let that happen.

Chang: In the early days of CITIC, the Group's control was stronger. After establishing subsidiary companies, control relaxed in some ways. But I think today's focus is on another level. It's not a focus on management strategy; the Group doesn't want to interfere with managing subsidiaries. It's a focus on financial management and strategic planning.

Additional Diversification

The CITIC Pacific crisis is not the first time the Group's subsidiaries have seen turmoil. At times, it's even been a mystery as to exactly how many subsidiaries or hundreds of offshoot subsidiaries CITIC has. Now we know: The group currently has around 400 subsidiaries.

Yet the "multi-level debt, multi-level management" model has meant that, for a long time, money invested or loaned to subsidiaries has often only been partially repaid, or not paid at all.

In 2009, only a few companies in the government's State-owned Assets Supervision and Administration Commission system were larger than CITIC: China Mobile, CNPC, Sinopec, CNOOC and Shenhua Group. Among financial institutions, CITIC ranked behind only ICBC, ABC, BOC, CCB, BOCOM and CDB.

But CITIC is the only diversified corporation in these lists of state-owned corporations. And its management team is well aware that this business model has led to a sometimes fragmented asset allocation, that has resulted in unsatisfactory results at points in the past.

Integration has been the response. In October 2009, CITIC transferred a 70.3 percent stake in CITIC International Financial Holdings (CIFH) to CITIC Bank. That followed a late 2008 completion of a transformation by CIFH, the predecessor to CITIC Bank International. The end result was an integration of  CITIC's commercial banking business.

More steps were taken in 2009 involving Guohua International Engineering Contracting Co., CITIC International, and CITIC's real estate division. So what's next?

Caixin: What does CITIC's diversification strategy slogan "build comprehensive advantages, lead in a few fields" mean?

Kong: This isn't a mature strategic framework. One can only say that the phrase leads and guides the formation of our strategy. So far, we think the diversification model can be developed sustainably, but it requires further integration and innovation.

"Lead in a few fields" means we should enter sectors with significant growth potential. Take the mechanical industry for example. Our Luoyang Heavy Machinery is the best company in the heavy mining machinery field. It also means we have to exit sectors where we don't have a competitive advantage.

Chang: By developing an integrated business at the Group level, while at the same time allowing for subsidiaries to develop individual specialties, we should allow for high efficiency and controllable risk.

Caixin: What does the CITIC Group strategy look like in non-financial industries? How will adjustments be made moving forward?

Kong: Foreign companies mainly rely on mergers and acquisitions for expansion. CITIC has positioned itself as a multinational company, but internationalization must be based on the growth of China's economy.

CITIC's non-financial sectors of involvement include investments in resources, engineering and oversees projects, investments in infrastructure and real estate, as well as advantageous involvement in manufacturing industries formed in the development process.

Internationally, resource investments are still our focus. We're relatively cautious in overseas acquisitions. Overseas acquisitions need to be timed right, have the right pricing and be closed on the right terms.

The battle line for overseas projects is long and the battlefield is large. Our profitability is limited, but the role (of international products) goes beyond financial performance because they are matched with China's overseas strategy as well as CITIC's internationalization strategy.

The real estate industry fits CITIC, and its speed of development has been fast. There is also excellent synergy with CITIC's financial businesses. The two industries can be complementary, and I don't think any other institutions have this sort of synergetic ability.

Chang: I think a particular focus should be put on fostering and supporting companies and businesses with an elevated status in the industry, high technology content, good growth and which can make a large contribution to the group's revenues and profits. CITIC will not invest in nor allocate capital to investments in areas in which we lack leading advantages.

Caixin: Will there be reforms and adjustments to the CITIC Group's organizational structure?

Kong: Our thinking on synergy is different from 2003, when we started promoting integrated financial services. Because comprehensive advantages cannot be separated from synergies, and since we can't avoid these sensitive, large-scale related-party transactions, we are aiming to extend our financial services platform to be to a service platform for the whole group.

Without synergy, comprehensive advantages are out of the question. For example, in some countries and regions with resources, we build overseas projects, providing engineering in exchange for resources. This not only gives us the resources we need for economic development, but it also helps those countries establish infrastructure for their economies.

In another example, we have a joint venture oil field in Kazakhstan. Recently, we established a fund to invest in sectors with development in China or Kazakhstan. One could say that CITIC has a certain experience and ability in this regard. We are confident that we can further enhance synergies moving forward.

Listing Strategy

CITIC is now bracing to meet overseas investors. Chinese regulations say assets cannot be listed on the A-share market twice, which means the only possible option for a new listing for the entire group would be on a foreign stock exchange, given the Group's existing A-share listed subsidiaries.

An overall listing for the CITIC Group has been on the agenda since 2008. A Group Supervisory Board report to the State Council mentioned that the CITIC Group has currently reached a critical stage in its reform.

Kong thinks that a listing would be a "historic choice at a critical period for reform." He hopes an overall listing for the Group would force CITIC to adjust its development model.

Kong: What do we want to do? We want to build a larger platform so those behind us can use the platform to lead CITIC forward. I would prefer not to accept a cash injection from the Chinese central government; I just hope (the State Council) will let us go overseas. I told one of China's leaders: "If you let CITIC go abroad, I'll bring back another US$10 billion."

Caixin: Historically, CITIC had hundreds of subsidiaries, and subsidiaries of subsidiaries, to the point where the Group did not even know how many companies it had. Each worked hard and retained profits, only turning to headquarters in a crisis. Has this situation been reversed?

Kong: A coin has two sides. CITIC's decentralized structure is a special characteristic created by history, but it has its drawbacks as well.  Because of survival and development needs, each subsidiary needs additional capital during its development. So CITIC Group sends our boats out into the ocean one by one. But if each boat develops completely independently, they can't be called a fleet. The combined fleet must be reorganized, and each boat must be clear about its function.

Caixin: We've mentioned GE multiple times and have said GE is listed as a group. Does this mean CITIC Group wants to take the same road? Would this enhance the Group's financial strength and be more conducive to efficient asset allocation?

Kong: We hope to use an overall Group listing as an opportunity to enhance synergies, risk control, strategic management and the appropriate allocation of resources at the core of promoting changes to the group management methods.

The first report from the recent central economic work conference mentioned that reform to the shareholding system of large Chinese holding companies would be promoted. This has affected our thinking at CITIC since 2008, and last year we began forming specific ideas about promoting an overall listing.

Caixin: You mentioned internal integration, which is a sensitive issue. Would an overall listing meet resistance from subsidiaries?

Kong: An overall listing wouldn't wipe out the development of our subsidiaries. In fields and industries we want to develop, we certainly need to support their maximum development. But we must weigh the risks. On one hand, we need to strengthen risk control, while on the other we need to strengthen collaboration among our subsidiaries. Share reform and choosing to list may be a historically significant event.

Caixin: Would an overall listing mean you would want to have further equity integration for subsidiaries, such as privatization?

Kong: In November 2008, we privatized Hong Kong-listed CITIC International Financial Holdings and moved it inside CITIC Bank. Privatization and listings are two methods that are best utilized at different stages. From a securities regulatory perspective, if too many subsidiaries are listed, the parent company won't be able to plan well. I can't say now whether we would privatize any specific subsidiary. But if this sort of method is necessary, it can be used.

Many state-owned institutions need large capital injections for share reform and listings. But one of our hopes for an overall listing is that we will be able to pay our own way.