China must control financial risk as its markets open wider, regulatory body says

‘We must clean up all the financial mess and have zero tolerance for irregularities,’ agency chaired by Vice-Premier Liu He says
Reform of large state-owned banks among targets outlined at meeting of Financial Stability and Development Committee

China economy

Frank Tangin Beijing

Published: 5:44pm, 1 Nov 2020

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China must safeguard against financial risk as it prepares to open its markets wider to private and foreign investors, a regulatory body chaired by the country’s top economic adviser said on Saturday.

“We must clean up all the financial mess and have zero tolerance for irregularities,” the Financial Stability and Development Committee (FSDC) said in a statement released online.

“Our bottom line of no systemic financial risks must be defended,” said the agency, which is headed by Vice-Premier Liu He.

The world’s second-largest economy has been tackling a host of financial challenges in recent years – from eradicating unscrupulous peer-to-peer lending platforms to reducing debt levels and shoring up small- and medium-sized banks – and is nearing the end of its three-year “de-risking” agenda to stabilise markets, while also protecting the environment and eradicating poverty.

China’s financial stability body steps up meetings amid heightened risks

The committee’s comments come after China’s leaders last week released their key development principles for the 2021-25 five-year plan period and the decade beyond. These call for a balance between development and financial security, as well as vigilance against external destabilising forces such as the possibility of a decoupling from the United States.

There will also be a “higher-level opening” of China’s markets, according to the communique issued after the Communist Party’s latest plenary session, which will create new challenges for the state-controlled financial system and test the government’s ability to manage the flow of so-called hot money into the country.

Hundreds of billions of yuan worth of funds have flowed into China’s bond and stock markets in recent years, and Wall Street conglomerates have stepped up their efforts to establish their presence in China’s onshore market.

The world’s second-largest economy has been tackling a host of financial challenges in recent years. Photo: AFP

The People’s Bank of China said on Friday the country would pursue “bigger, wider and deeper” financial opening up, but must not slack in its efforts to prevent risk.

The FSDC statement outlined several targets, including the reform of large state-owned banks, the creation of a registration mechanism for initial public offerings to allow businesses better access to direct financing, and ensuring smoother cross-border capital flows.

It stressed the importance of new technologies and innovation, but said robust supervision, transparency and information disclosure, fair competition and the enforcement of antitrust laws were also critical.

“We need to encourage innovation and entrepreneurship, but also strengthen regulation,” the statement said.

“All financial activities must be put under close scrutiny for the sake of risk prevention.”

This article appeared in the South China Morning Post print edition as: Risk prevention seen vital as Beijing opts to open up

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