China economy

‘Man of action’ takes the helm of China’s new financial watchdog

After setting off a ‘regulatory storm’ in the industry, liberal technocrat Guo Shuqing is taking charge of the new banking and insurance regulator

PUBLISHED : Wednesday, 21 March, 2018, 7:18pm
UPDATED : Wednesday, 21 March, 2018, 11:36pm

A key enforcer of President Xi Jinping’s financial crackdown over the last two years has been handed the top regulatory job looking after the banking and insurance sectors.

Veteran technocrat Guo Shuqing will head the new China Banking and Insurance Regulatory Commission, a merger of two watchdogs, financial magazine Caixin reported on Wednesday.

The 62-year-old, widely described as “international minded” and “liberal”, will also be an important aide to new Vice-Premier Liu He in the battle to avoid a financial crisis.

Guo was once seen as front runner to become the next central bank governor, but that job went to Yi Gang, previously No 2 at the People’s Bank of China, earlier this week.

The new commission will focus on regulation, while the central bank will be the rule-making body, according to a government reshuffle plan unveiled last week.

Guo’s career has followed a similar path to that of Zhou Xiaochuan, 70, who on Sunday retired as central bank governor after 15 years.

Guo headed the State Administration of Foreign Exchange at the start of the millennium, and spearheaded the restructuring and listing ­of China Construction Bank before taking over as chairman of the China Securities Regulatory Commission in 2011.

His time at the securities regulator was marked by efforts to introduce change that saw him issue some 70 policy directives during his 17 months at the helm. But they had mixed results and he left Beijing in early 2013 to take up the job of governor in the eastern province of Shandong.

“He is a pro-reform figure and a man of action,” said Ding Shuang, chief Greater China economist of Standard Chartered Bank in Hong Kong.

“The banking and insurance sectors represent the vast majority of China’s financial system … He will still have a big say [in policymaking].”

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When Guo boarded a high-speed train to Beijing in February 2017, he was returning to the financial sector as chairman of the banking regulator. It was apparently a welcome return – at his first press conference in the job, Guo joked that he knew more about rural toilets than banking supervision.

But he went on to start a “regulatory storm” in the industry as the watchdog took an aggressive approach, curbing interbank lending and borrowing, and punishing irregular activities with big fines. One lender targeted was the Chengdu branch of Shanghai Pudong Development Bank, which was fined 462 million yuan (US$72.95 million) for inflating its balance sheet.

According to a leaked internal memo in June, the regulator under Guo also told lenders to be cautious about indebted borrowers including Dalian Wanda Group, HNA Group and Anbang Insurance Group.

“He is an excellent resource and I hope he remains central to financial reform,” said Fraser Howie, director of Newedge Financial in Singapore.

Guo had “good experience at all levels, with a track record of reform at different places”, which would serve him well as chairman of the expanded regulator, Howie said.

Born in Inner Mongolia and educated at Oxford University, Guo is no stranger to the economic headaches facing China. With his help, “irrational” outbound investment was brought under control – it fell 29.4 per cent to US$120 billion last year from 2016 – and many of the tycoons targeted in the campaign are now selling their assets.

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But his “uncompromising attitude” is a double-edged sword, according to Henry Chan Hing Lee, an adjunct research fellow at the East Asian Institute of the National University of Singapore.

“It is not unreasonable to speculate that Guo is moving a little too fast on his mission and hurting some entrenched interests,” he said.

In the new job, it appears Guo will not be changing his approach.

“We will continue to focus on shadow banking, interbank wealth management and off-balance-sheet businesses, and defuse financial risks in overlapping areas this year,” Guo told reporters on the sidelines of the National People Congress on March 9.

“Trust firms and internet finance are still weak links that deserve greater efforts,” he added.