China economy

Who should lead China’s new agency to fend off financial crises?

PUBLISHED : Thursday, 27 July, 2017, 4:17pm
UPDATED : Thursday, 27 July, 2017, 11:04pm

China’s premier or a vice-premier should head a new government agency to draw up polices to regulate financial markets and address risks such as spiralling debt facing the economy, according to analysts.

China’s top leaders decided at a key financial work conference earlier this month to create the “financial stability and development committee” under the State Council to address growing financial threats.

The government has not, however, provided details about the agency, including who will head it.

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“If the agency only looks after financial risks, its chief should be the vice-premier in charge of the finance sector, but if the agency is to oversee all risks related to finance, then its chief should be the premier,” said Zhao Xijun, a finance professor at Renmin University in Beijing.

“Since the general secretary [of the Communist Party] can head the leading group on financial and economic affairs, why can’t China’s premier head the financial stability committee?” he said.

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Increasing numbers of analysts believe that China’s existing regulatory framework is too fragmented and centralised coordination among different watchdogs is badly needed to fend off financial risks that may face world’s second largest economy.

Ma Kai, one of four vice-premiers in the state council, is in charge of the finance sector in the cabinet. Premier Li Keqiang has oversight of economic affairs.

The new committee will have more power than the current system in which there is liaison between the central bank and the banking, securities and insurance watchdogs.

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The committee, however, falls short of a radical plan to merge the central bank and the three regulators.

A new agency, on top of existing ones, was a relatively low-cost solution to address lax regulation, said Zhu Haibin, chief China economist at the banking and financial services firm JPMorgan.

“The committee will be an institution with real power, it won’t just coordinate,” said Zhu.

The current system of oversight was launched in August 2013 with central bank Governor Zhou Xiaochuan as convener, but it has proved toothless in addressing financial risks.

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“There is a lot of regulatory void to be filled,” said Zhao at Renmin University. Financial risks such as debt could affect the wider economy and harm social stability, which requires a high level of oversight, he said.

“It’s not just about the central bank and the three financial regulators, it is also about local governments, state-owned enterprises and even household debt,” Zhao said.

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China’s stock market rout in the summer of 2015 exposed the failings of financial regulators and the rare large protest by thousands of members of a pyramid fund-raising scheme in Beijing earlier this week highlighted how financial problems can translate into social unrest.

The committee, for now, does not even have an address or a telephone number.

According to an earlier statement from the central bank, it will run an office to handle the day-to-day businesses of the committee.

Additional reporting by Sidney Leng