Bank­ing, in­sur­ance over­hauled in party crack­down on un­ruly fi­nance sys­tem

Arab News - - BUSINESS -

BEI­JING: China is merg­ing its bank­ing and in­sur­ance reg­u­la­tors and giv­ing new pow­ers to pol­i­cy­mak­ing bod­ies such as the cen­tral bank in the big­gest gov­ern­ment shake-up in years.

The re­vamp is a corner­stone of Pres­i­dent Xi Jin­ping’s agenda to put the lead­er­ship of the rul­ing Com­mu­nist Party squarely at the heart of pol­icy with Xi him­self at the core of the party.

The econ­omy and the party have be­come ever more in­ter­twined since the party congress in Oc­to­ber when Xi con­sol­i­dated his grip on power, with party con­trol deemed nec­es­sary to help push through re­forms.

The long-awaited move to tighten over­sight of the $42 tril­lion bank­ing and in­sur­ance sec­tors comes as au­thor­i­ties seek more clout to crack down on riskier lend­ing prac­tices and re­duce high cor­po­rate debt lev­els.

“Deep­en­ing the re­form of the party and state in­sti­tu­tions is an in­evitable re­quire­ment for strength­en­ing the long-term gov­er­nance of the party,” Liu He, Xi’s top eco­nomic ad­viser and con­fi­dante, wrote in a com­men­tary in the of­fi­cial Peo­ple’s Daily on Tues­day.

On Sun­day, pres­i­den­tial term lim­its were re­moved from the state con­sti­tu­tion, giv­ing Xi the right to re­main in of­fice in­def­i­nitely, and con­firm­ing his sta­tus as the coun­try’s most pow­er­ful leader since Mao Ze­dong died more than 40 years ago.

The heads of the new merged reg­u­la­tor, min­istries and de­part­ments will be an­nounced be­fore the close of the an­nual ses­sion of par­lia­ment on March 20.

China will also form a na­tional mar­kets su­per­vi­sion man­age­ment bureau, ac­cord­ing to a par­lia­ment doc­u­ment re­leased on Tues­day.

The pow­er­ful bureau will take on the pric­ing su­per­vi­sion and anti-mo­nop­oly law en­force­ment role from the Na­tional De­vel­op­ment and Re­form Com­mis­sion, Min­istry Com­merce and State Coun­cil.

Many Xi al­lies are ex­pected to get top ap­point­ments in­clud­ing the chair of the Na­tional Peo­ple’s Congress, or par­lia­ment, and Na­tional Su­per­vi­sory Com­mis­sion.

China is among the global economies seen as most vul­ner­a­ble to a bank­ing cri­sis, the Bank for In­ter­na­tional Set­tle­ments (BIS) said at the week­end, though Bei­jing has main­tained that debt risks are un­der con­trol.

Spec­u­la­tion that Bei­jing was con­sid­er­ing the cre­ation of a su­per fi­nan­cial reg­u­la­tor has been rife since the Chi­nese stock mar­ket crash of 2015, which has been blamed in part on poor in­ter-agency co­or­di­na­tion. The en­su­ing mar­ket res­cue was also seen as heavy handed by some mar­ket watch­ers. of

The merger of the China Bank­ing Reg­u­la­tory Com­mis­sion (CBRC) and China In­sur­ance Reg­u­la­tory Com­mis­sion (CIRC) is aimed at re­solv­ing ex­ist­ing prob­lems such as un­clear re­spon­si­bil­i­ties and cross-reg­u­la­tion, ac­cord­ing to the par­lia­ment doc­u­ment.

The new merged en­tity will di­rectly re­port to the State Coun­cil, or cab­i­net.

The func­tion of mak­ing im­por­tant laws and reg­u­la­tions of the CBRC and CIRC will be trans­ferred to the Peo­ple’s Bank of China (PBOC) as the cen­tral bank takes on a big­ger role.

CBRC, cur­rently headed by Guo Shuqing, was carved out of the cen­tral bank in 2003 un­der a State Coun­cil direc­tive, while CIRC was cre­ated in 1998.

The se­cu­ri­ties reg­u­la­tor — the China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion (CSRC) — will re­main a sep­a­rate en­tity, how­ever.

“There is a valid ar­gu­ment to sep­a­rate reg­u­la­tion of eq­uity mar­kets from that of the bank­ing sys­tem. You don’t want your mon­e­tary au­thor­ity ob­sessed with sup­port­ing eq­uity mar­kets, be­cause that can lead to bad macro-pol­icy,” said An­drew Polk, a co-found­ing part­ner at re­search firm Triv­ium China.

“(It) goes be­yond stream­lin­ing to over-con­cen­tra­tion,” Polk said.

CSRC chair­man Liu Shiyu “is both po­lit­i­cally savvy and fairly pow­er­ful in his own right, at least when com­pared to other fi­nan­cial reg­u­la­tors. He has been seen to be do­ing a good job in the post and wouldn’t want to be sub­or­di­nated to the likes of Guo Shuqing.”

China’s fi­nan­cial sys­tem has be­come in­creas­ingly tough to reg­u­late as it grows rapidly in size and com­plex­ity, emerg­ing as one of the world’s largest with fi­nan­cial as­sets at nearly 470 per­cent of gross do­mes­tic prod­uct, ac­cord­ing to the In­ter­na­tional Mon­e­tary Fund.

Com­pa­nies regis­tered as banks or in­sur­ers have also started dab­bling in other ar­eas of fi­nance with many of­fer­ing com­plex hy­brid prod­ucts and mak­ing non­tra­di­tional in­vest­ments.

Many bro­ker­ages also struc­ture wealth man­age­ment prod­ucts as a chan­nel for hid­den bank lend­ing, in ad­di­tion to the more tra­di­tional busi­ness of fa­cil­i­tat­ing share trades and in­vest­ment bank­ing ser­vices.

“One area of sys­temic risk is in­sur­ance, and one of the prob­lems is that some in­sur­ance prod­ucts have fallen in the cracks be­tween in­sur­ance and bank­ing and no­body was look­ing af­ter them,” said James Stent, a for­mer in­de­pen­dent di­rec­tor at two Chi­nese banks and au­thor of “China’s Bank­ing Trans­for­ma­tion.”

Reg­u­la­tory ar­bi­trage and risky cross-as­set in­vest­ments have wor­ried pol­i­cy­mak­ers.

Ac­cord­ing to the par­lia­ment doc­u­ment re­leased on Tues­day, the gov­ern­ment will create seven new min­istries: Nat­u­ral re­sources, eco­log­i­cal en­vi­ron­ment, emer­gency man­age­ment, agri­cul­ture and ru­ral af­fairs, cul­ture and tourism, vet­er­ans af­fairs, and the Na­tional Health Com­mis­sion.

Within the de­part­ments be­ing re­struc­tured, some of­fi­cials are con­cerned about the loss of some func­tions while oth­ers wel­come the op­por­tu­nity to gain new pow­ers, ac­cord­ing to peo­ple fa­mil­iar with the sit­u­a­tion.

“Every­one seems to re­gard these de­part­ments as their own in­ter­ests — giv­ing up a piece of your­self is very heart-wrench­ing but it’s a plea­sure to take a piece of some­one else,” said an of­fi­cial at a min­istry, who de­clined to be named.

The Na­tional Coun­cil for So­cial Se­cu­rity Fund led by for­mer fi­nance min­is­ter Lou Ji­wei will be man­aged by the fi­nance min­istry, in­stead of the State Coun­cil.

The agri­cul­ture min­istry, which had not un­der­gone any ma­jor change in its role and over­sight since 2013, will come un­der a new min­istry that will also be in charge of ru­ral de­vel­op­ment.

The pro­posed changes were dis­cussed in par­lia­ment on Tues­day, and are ex­pected to be for­mally ap­proved on Satur­day.

When the plan is passed, the cab­i­net will con­sist of 26 min­istries and com­mis­sions in ad­di­tion to the Gen­eral Of­fice of the State Coun­cil. —

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