China sets up super regulator to mend over fragmented financial regulatory structure

PUBLISHED : Saturday, 15 July, 2017, 10:09pm
UPDATED : Saturday, 15 July, 2017, 10:50pm

President Xi Jinping has ordered the establishment of a super regulator with powers to coordinate the supervision and management of financial stability, finally putting into action a plan that has been in the works for at least a decade to mend over the country’s fragmented regulatory structure.

The State Council will set up a Financial Stability Development Committee to coordinate between the regulators of banking, securities and insurance, while the People’s Bank of China -- the central bank -- will be imbued with powers to assume a bigger role in curbing risks, according to Xinhua News Agency, citing the National Financial Work Conference.

Details of the new committee’s function haven’t been revealed, but the central bank and the three regulators of banking, securities and insurance will remain in place.

Political stability is the top priority for Xi and his government, as they head into the Communist Party’s conclave this autumn for selecting the leadership ranks for the next five years. Fresh on everybody’s mind is how the country’s financial regulatory structure was ill-prepared for the 2015 rout that wiped trillions of yuan from the stock market’s capitalisation, and last year’s insurance industry chaos that roiled the securities market and banks.

The government has already sacked the chairman of the China Insurance Regulatory Commission, and had him investigated for graft, while penalising insurers whose fund raising activities had “seriously disturbed an orderly financial market.” Such behaviour will be curtailed, Xi said, according to Xinhua.

While pledging to let market forces play “a decisive role” in allocating financial resources, Xi emphasised that the party’s leadership should “ensure the right direction of financial reform and development.”

“The eternal theme of financial work is to prevent systemic financial risks,” which requires regulatory departments and local governments to monitor risks, as well as intervene to control the scale of local government debts, Xi said at the meeting, according to Xinhua’s report.

Regulation of the country’s financial industry will cover every aspect of financial activities, requiring the government to put in place risk controls in market access, early intervention and market exit, Chinese premier Li Keqiang said at the same conference.

The closed door conference has been held once every five years, since the 1997 Asia Financial Crisis, which sets the government’s financial priority for the next five years.

While tightening the reins on financial supervision, Xi also pledged to further promote reforms in the yuan’s exchange rate the currency’s internationalisation, to promote its use in global trade and financial settlements.

The country’s financial industry will be liberalised at a reasonable pace, while the process for making the yuan a freely convertible currency will be “gradual,” he said.

The conference also pursued an agenda of deleveraging, in an attempt to cut back on the hefty debt burden of large state-owned enterprises.

The People’s Bank of China will also maintain its prudential monetary policy, seeking a balance between the need to prop up economic growth, while prodding unprofitable industries to shutter and state enterprises to reduce borrowing.

Financial institutions will have to clean up any unnecessary services, which may have raised the funding costs for the real economy, he said.