PBOC official: China’s asset management sector to shrink

A central bank official says the sector “is likely to” shrink as regulators crack down on irregularities that have contributed to risks in the financial system

PUBLISHED : Sunday, 30 July, 2017, 6:07pm
UPDATED : Sunday, 30 July, 2017, 11:02pm

China’s asset management sector “is likely to” shrink in scale but would be of improved quality as Chinese regulators step up joint efforts to weed out irregularities, a central bank official told a forum over the weekend in Shanghai.

Tao Ling, deputy head of the financial stability bureau at the People’s Bank of China (PBOC), said on Saturday that tighter scrutiny would help squeeze out the bubble, rule out regulatory arbitrage and trim over-leverage, resulting in a possible downsized but better quality sector.

This would help steer capital flow to the real economy, she added.

Tao didn’t indicate the scale of the downsized sector, but provided some details on the six identified irregularities that could lead to cross-sector risks amid increasingly intertwined financial transactions.

They include different standards among different regulators, complex and opaque products, ill business operations and implicit guarantees that are hard to break and could distort pricing of capital.

The central bank is leading the nation’s banking, securities and insurance regulators in drafting new rules governing the asset management sector.

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“After the launch of the new rules, the central bank will keep stepping up coordination among regulators,” Tao said, noting that regulators would further refine the rules in response to changing market conditions.

After the launch of the new rules, the central bank will keep stepping up coordination among regulators
Tao Ling, PBOC

Tao didn’t give a timeframe on when the rules will be in place.

But they will include supervision of unlicensed non-financial institutions, on top of a mechanism to regulate the whole asset management process, that is from product issuance, capital raising to investment.

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While stressing the significance of the scrutiny, she also said there would be space for financial innovation, and better communication with market players to manage expectations.

According to Ren Huichuang, president of Ping An Insurance (Group) who also attended the forum, the asset management sector was estimated to have rapidly grown to 114 trillion yuan (US$17 trillion) by the end of 2016, with a compound annual growth rate of 39 per cent in the past three years.

Ren said the sector was already witnessing signs of a scaleback in the first half, as the market was responding to regulators’ increased scrutiny.