China central bank dismisses criticism of its financial regulation, urges ‘realistic’ appraisal of environment

China’s central bank has hit back at criticism of its regulatory failures by outspoken former finance minister Lou Jiwei over the weekend

The disagreement among Beijing’s economic policymakers comes amid heightened concern about risk in some parts of the financial system

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Outspoken former finance minister Lou Jiwei opened fire on the People’s Bank of China (PBOC) for its regulator failures. Photo: Simon Song

Published: 8:30pm, 21 Dec 2020Updated: 10:09pm, 21 Dec 2020

China’s central bank has called for “realistic” criticism of its performance amid a sharp rise in high-profile domestic bond defaults, following a surprisingly sharp attack from a former finance minister.

The disagreement among Beijing’s inner circle of economic policymakers, which burst into view just two days after the nation’s top leaders vowed to provide policy support for the economy next year to counter the impact of the coronavirus pandemic and external uncertainties, comes amid heightened concern about risk in some parts of the financial system.

Speaking at the China Wealth Management 50 Forum on Sunday, outspoken former finance minister Lou Jiwei opened fire on the People’s Bank of China (PBOC) for its regulation of bond markets, its supervision of big financial tech firms, and its 170 billion yuan (US$26 billion) capital injection of taxpayers money into the failed Baoshang Bank. He also suggested the nation’s top financial regulatory body needed new leadership.

In response to Lou’s criticism, Finance News, the newspaper affiliated with the PBOC, said on Monday that the current situation must be considered from a historical and “realistic perspective”.

“The interbank bond market is actually for institutional investors. It is in line with market rules to issue bonds there,” the paper’s editorial said. “Forced delisting [of bonds] could lead to a plunge in banks’ demand, fluctuations in interest rates, and systemic financial risk if corporate cash flows were adversely affected.”

A separate article by Zhang Feiyu, widely believed to be a pen name used to reflect the views of financial regulators, said the bond market problems occurred because of a lack of transparency that had resulted in economic distortions.

“People think that attempts to evade debt, the distorted pricing of local-government bonds, an unsound yield curve for treasury bonds and fund embezzlement of large shareholders are financial market problems. Actually they’re not,” Zhang wrote.