Beijing has launched an unprecedented drive to clean up its financial sector by shutting down a troubled regional bank and one of the country's largest trust and investment companies. The People's Bank of China (PBOC) last Friday closed down the Hainan Development Bank due to a payment crisis and ordered it to be taken over by the Industrial and Commercial Bank of China (ICBC) - the first time a regional bank was closed down. Yesterday, PBOC officially shut down China Venturetech Investment Corp (CVIC), a debt-laden but well-connected trust and investment company controlled by relatives and officials close to the late Deng Xiaoping and Chen Yun, once the country's two most important leaders. This is the third large investment company Beijing has shut down in the past few years following the closure of China Agribusiness Development Trust and Investment in January last year as well as Zhongyin Trust and Investment Corp in the previous year. A PBOC official yesterday confirmed CVIC's closure and said the central bank would today issue a statement in the bank-controlled newspaper Financial News, explaining how CVIC would be wound up. The part of CVIC which suffered heavy losses because of its exposure to the property market as well as unauthorised speculation in foreign exchange markets is expected to be taken over by China Huarong Trust and Investment Corp - an ICBC spinoff - banking sources said. A CVIC official said the company's securities operations would be taken over by China Guotai Securities. Banking sources said CVIC's joint ventures and subsidiaries which were not involved in finance and banking would be allowed to continue operating while the company's foreign and domestic debts would be taken care of. CVIC, an arm of the Ministry of Science and Technology, holds large indirect stakes in Hong Kong-listed First Shanghai Investments, China Asset (Holdings) and Shenyin Wanguo (HK). It remains unclear how CVIC's interests in the locally listed companies will be affected as a result of it ceasing operations. Both Shenyin Wanguo director Chris Wong and China Assets managing director Frank Tsui said their companies would not be affected. First Shanghai shares fell 6.1 per cent to 46 cents and Shenyin Wanguo (HK) dropped 4.4 per cent to 65 cents while China Assets bucked the trend, gaining 8.6 per cent to $1.76. Economists hailed the PBOC's clean-up operation, saying it was long overdue. 'The moves prove Beijing is deadly serious in tackling the problems in the financial sector, particularly after the Asian financial crisis partly triggered by the banking problems in Thailand and Japan,' Standard Chartered Bank senior economist Liao Qun said. 'There will be more closures and mergers of the country's banks and other financial institutions, which is good in the long term.' Last week, rating agency Moody's Investors Service warned the mainland's banking system remained 'critically weak'. CVIC was launched by the State Science and Technology Commission in 1985 with the blessing of the then senior government leader Chen Yun whose daughter Chen Wenli is one of CVIC's top managers. One of CVIC's powerful backers is Deng Nan, a daughter of Deng Xiaoping. She is vice-minister of the commission now renamed as the State Science and Technology Ministry. Hainan Development Bank was founded in August 1995 from a merger of five trust and investment firms in Hainan. It counted among its largest shareholders the Hainan provincial government, China Ocean Shipping and China North Industries Corp - an investment arm of the mainland armed forces. In 1996, it made pre-tax profits of 125 million yuan (about HK$116.27 million), with assets of 8.63 billion yuan by the end of the year, according its recent annual report.