Tag Archives: China Banking and Insurance Regulatory Commission

And The Greatest Of These Is Stability

THE PECKING ORDER of the priorities laid out by the Financial Stability and Development Committee (FSDC), China’s top financial policy committee, on March 16 is probably stability, economic stimulus and greater clarity on the regulation of the platform internet companies.

The readout from the meeting, chaired by Vice Premier Liu, also represents a short-term order of business in response to some unexpectedly gusty economic headwinds rather than a long-term change of policy course — an effort to stabilise financial markets and bolster investor confidence.

There is nothing in the reports of the FSDC’s deliberations to suggest private companies will not have to align themselves with government policy objectives or that current policy objectives have changed materially.

On the contrary, financial institutions were told to ‘consider the big picture’ and firmly support the development of the real economy, while regulators were told to complete the ‘rectification’ of the platform internet companies soon and with transparency, not to ease off them.

Nonetheless, investors in Chinese financial markets chose to see only light at the end of the tunnel, not the darkness surrounding them of late. The CSI 300 Index of mainland shares climbed 4.3%, while the Hang Seng China Enterprises Index jumped 13% in Hong Kong, recouping nearly half of its loss this year.

The China Banking and Insurance Regulatory Commission encouraged bank subsidiaries, asset managers and insurance companies to increase their investment in equities. The People’s Bank of China said the risks in the real estate market must be dealt with ‘under the principle of steady progress’. The finance ministry let it be known that there would be no further expansion of the property tax trial this year, regardless that President Xi Jinping in a speech last October indicated that a national property tax would be a centrepiece of ‘common prosperity’ .

Going even slower on deleveraging the real estate sector and introducing a property tax is a sign of how worried authorities remain about the housing market’s slump, the intractability of developers’ debt and their potential knock-on effects for the broader economy.

Despite regulators relaxing M&A funding rules and being more permissive towards developers taking on new debt, reversing the squeeze on financing for property developers, potential buyers have remained cautious. It has only really been state-owned banks buying up their clients’ distressed deals.

Reuters news agency has reported that in Shanghai, authorities told local state-owned enterprises (SOEs) to buy new bonds being sold by Greenland, a developer at risk of defaulting on a $500 million offshore bond in December. Reuters says this is the first known example of SOEs being ordered to participate this way in a bailout.

The war in Ukraine poses further challenges to an economy also dealing with an uncertain global economy, the effects of the most menacing surge in new Covid cases since the pandemic’s earliest days at the start of 2020, and the unexpected outflow of capital when other emerging markets are attracting it.

At the Two Meetings earlier this month, authorities made it clear that some long-term economic reforms would be put off for now in order to focus on growth this year. Even before then, at the Central Economic Work Conference at the end of last year, stability was the watchword.

Stability will matter more than ever in the Party Congress in the autumn. Investors should remember that their sentiment is also expected to fall in with that cause.

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China Readies A New Era In Financial Policymaking

Headquarters of the People's Bank of China, Beijing 2015. Photo Credit: bfishadow. Licenced under Creative Commons.

THE GOVERNANCE REORGANISATION rubber-stamped by the recently concluded National People’s Congress has significantly changed the policy-making and regulatory landscape of the financial system.

As with other parts of the administration, it has consolidated agencies and strengthened the Party’s leading role over state administration.

The People’s Bank of China (PBOC) has emerged as the institutional lynchpin of the system with the banking and insurance industry regulators merged into the new China Banking and Insurance Regulatory Commission (CBIRC) and now reporting to the PBOC.

The central bank will be headed by Yi Gang, previously deputy to Zhou Xiaochuan, now 70 and who is retiring after 15 internationally respected years as governor. Yi nominally reports to the Standing Committee of the NPC but in effect to Liu He, long President Xi Jinping’s closest economic advisor and now elevated to vice-premier in charge of economic policy.

This all leaves China’s prime minister, nominally the country’s second-ranking official and customarily the one responsible for running the economy, pretty much out of the picture. That has been the de facto case for some time as Liu has been steering financial and economic policymaking from the leading group on the economy.

As vice premier, his remit will run to the financial sector, state-owned enterprise reform, industrial policy and relations with the United States. The remit underlines the twin challenges that China faces from a level of debt approaching 300% of GDP and in dealing with a United States that seems ready to start a trade war if that is what it thinks will let it get the upper hand in what the Trump administration sees as the United States existential struggle with China.

Liu’s academic credentials and worldliness are immaculate for a policymaker. However, his bureaucratic experience does not match. Yi’s promotion at the PBOC signals not only policy continuity at the central bank as it tackles deleveraging but the need for operational expertise, which Yi, a 21-year veteran of the central bank, brings.

Similarly, the appointment of Guo Shuqing as the Party boss in the central bank, and thus Yi’s senior in its political hierarchy, adds another experienced and tough-minded financial regulator to the mix — not to mention another ally of Xi’s.

Guo also heads the new CBIRC, previously having been chairman of the China Banking Regulatory Commission where he led the crackdown on shadow financing and helped clean up the interbank lending market. He has also been prominent in taming the more ambitious overseas acquisition ambitions of some Chinese companies and has experience as a stock market and foreign exchange regulator.

How the duopoly at the head of the PBOC will work in practice is illustrated by the fact that Guo also becomes deputy governor, with the ‘reform’ mandate, while Yi has been appointed deputy Party chief.

Zhou combined both the Party boss and governor’s role (although the foreign ministry has a similar split arrangement.)

China has no truck with Western notions of central bank independence as given to the US Federal Reserve, the Bank of England or the European Central Bank. The PBOC is subordinate to the government, which in the Xi era means evermore to the Party as he strengthens the Party’s leading role.

In that light, it will be Liu who will be setting the direction of, and Yi who will be running China’s financial and monetary policy with Guo ensuring regulatory and supervisory coordination on the one hand and political coordination on the other.

All three men are long-standing advocates of financial liberalisation. However, there are urgent short-term issues to resolve, notably the United States and debt, that will slow progress toward liberalisation. Cautious opening up of access to the financial system to foreign investors and more internationalisation of the yuan will continue, albeit not at the cost in either case of deregulation elevating financial risk.

One of the reasons for the consolidation of the supervisory agencies is to cut out as much as possible the regulatory fragmentation that has allowed the shadow banking system to take root. Financial stability is the political priority right now. The marching orders from the trio’s now all-powerful boss are to clean up the debt and rebalance the economy without crashing it — or having the United States crash it for them.

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