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The headquarters of the People's Bank of China. In Tuesday’s meeting, the central bank reported to top leaders on its handling of financial risks. Photo: Reuters

Xi Jinping joins calls for more control of financial risks

Chinese president uses policy planning session to order a coordinated system of regulations, at a time when the country is facing strong economic headwinds

The top leadership in Beijing vowed to crack down on financial irregularities to ward off risk, ­hinting at policy priorities ahead of the upcoming annual ­parliamentary sessions.

In a financial work meeting on Tuesday, Communist Party chief and Chinese President Xi Jinping sent a message about establishing a system to coordinate financial regulation, to safeguard against systemic risks. Xi also ordered that the pace of economic reform be sped up.

The message came ahead of annual sessions that begin on ­Friday, in which lawmakers and advisers will gather in Beijing to discuss key policies at a time China is facing economic and financial headwinds that could send ripples through global markets.

Xi called for an examination of the defects in the nation’s financial regulations, and for changes to them that would make “reference to international standards”.

He also vowed to “unswervingly crack down on illegal activities”, according to a statement after the meeting posted on a government website.

Xi’s emphasis on minimising financial risks represents a priority that has been talked up recently. Financial regulators have vowed to dig deeper into shady deals in the capital markets to ­target “big crocodiles”, or tycoons who have amassed enormous wealth behind the curtains.

“The meeting’s message today is in line with the Central ­Economic Work Conference in December, but it was more ­focused and gave more details,” Lu Zhengwei, the chief economist with the Industrial Bank, said.

Chinese President Xi Jinping speaks at an anti-graft meeting in January. Xi has ordered that the pace of economic reform be sped up. Photo: Xinhua

“China is facing heavy external pressure this year, which has forced Beijing to take more of a focus on domestic issues in order to better counter external challenges,” he said.

The stock market meltdown in the summer of 2015 put the spotlight on consolidating China’s current hodgepodge of financial regulations. But worries have arisen since then that there is lack of consensus among top decision makers, which has delayed the roll-out of a revamped financial regulation regime.

In the work meeting, the People’s Bank of China reported to top leaders on its handling of financial risks. “The inconsistencies in the current financial regulation system have led to leeway, while the new financial products that were created quickly in the last few years have caused risks to spread across the board,” Wen Bin, the chief economist with China Minsheng Bank, said.

Xi also talked about dealing with “zombie” companies – underperforming entities that have stayed in business because of state support.

Xi stressed the need to remove idle capacity in the manufacturing sector and explore effective ways to handle the debts of the zombie companies in a fair way.

China recently resumed a programme to allow companies to swap their debt for equity, to avoid abrupt bankruptcies and massive job losses which could endanger social stability.

But there are concerns that the resolve to deal with some zombie companies may be lacking.

“With the recovery of demand and prices in manufacturing sectors such as steel and coal, some small companies with low technology, high pollution or high energy consumption have come back to life, and the resolution to address overcapacity by local officials and shareholders may not be as firm as before,” Wen said.

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