China’s central bank chief tamps down expectations of liberalising country’s financial industry

The People’s Bank of China Governor Yi Gang, two months after stepping into the shoes of the country’s longest-serving central bank chief, has sought to play down the expectations of a financial industry hankering for a faster pace of liberalisation, saying that whatever relaxation in regulations will have to be “gradual” and “steady.”

“We have introduced a few new policies after President Xi Jinping made the promise to the world that China will continue reforms during the Boao Forum” in April, Yi said during the Annual Conference of Financial Street Forum in Beijing. “We are working on more [plans], fine-tuning the time table and specific policies.”

Nearly two decades after joining the World Trade Organisation, China is fending off criticisms from the US and European Union that it’s still dragging its feet in opening the Chinese financial services industry - covering asset management, banking, insurance, stockbroking and trusts - to greater foreign participation. Overseas investors have also been pushing for a relaxation of China’s foreign exchange controls, where the currency remains non-convertible.

Any relaxation of China’s capital accounts, or financial industry must be “in accordance with regulatory capacity,” Yi said in a speech delivered in Chinese. Yi, who was promoted on March 19, took over from Zhou Xiaochuan, who had been running the Chinese central bank since 2002.

Operating in a sheltered market enabled Chinese banks to outgrow their foreign competitors, a fact that Yi acknowledged. Overseas banks owned 1.3 per cent of all assets in China’s banking industry in 2017, a smaller share than the 2.3 per cent share a decade earlier, which indicates they are “developing at a slower pace than the Chinese counterparts,” Yi said.

Criticism of China’s sheltered financial industry has become a flash point in Sino-US trade relations, becoming one of the topics that US Treasury Secretary Steve Mnuchin and US Commerce Secretary Wilbur Ross brought to China to negotiate to avert a trade war.

Partly to fend off US pressure, China in April announced that the foreign-ownership limit in securities, fund management, futures brokers and life insurers would be raised to 51 per cent.