Regulatory storm hits China’s banks as Xi pushes for better risk controls

China’s banking industry has been told to pull back from shadow banking in a shake-up that could drain trillions of yuan from the bond and stock markets and end the country’s decade of financial exuberance.

The shake-up is part of Beijing’s broad efforts to reduce leverage and speculation in the financial industry.

Beijing’s fears about the industry were spelled out on Tuesday when “financial risks” were referenced twice in a statement from a Politburo meeting chaired by Chinese President Xi Jinping.

Every regulator is on the move. The central bank has started to shrink its balance sheet and is trying to unify rules for the asset management industry; securities chief Liu Shiyu has lashed out at listed companies for irregularities; and the China Insurance Regulatory Commission is tightening its grip on insurers after former chief Xiang Junbo was put under investigation.

But the China Banking Regulatory Commission under its new chief Guo Shuqing is the most aggressive. Guo, who joked in early March that he knew more about rural toilets than banking regulation, has issued at least eight new risk-minimisation directives for banks this month alone.

“As the chairman of CBRC, I must resign if the banking industry is a mess,” Beijing Business Daily quoted Guo as saying.