‘Whirlwind’ turns focus to Chinese banks
As a top stock market regulator, Guo Shuqing cemented a reputation as an economic reformer who tried to bring market- oriented changes to China’s fraud- ridden and heavily politicized financial system.
During just 17 months in the role, he issued 80 major directives, moving to stop chronic insider trading, curb market manipulation and remove barriers for foreign investors. It earned him the occasional nickname Whirlwind Guo.
Now Guo has returned to Beijing to tackle an even bigger problem: the murky, debt- laden Chinese banking system.
On Friday the state news media said t hat he had been named chairman of the China Banking Regul atory Commission, succeeding Shang Fulin, who had reached the mandatory retirement age of 65. The Chinese commercial news media widely reported and filmed Guo’s arrival Friday morning at that agency, where he was greeted by Shang.
Guo’s appointment offers a sign that China is taking a financial overhaul seriously, though it was made among other moves that could send mixed signals about that commitment. The stakes are high: Experts widely believe that China’s weak financial system is holding back its economy, the world’s second largest.
China is trying to broaden its economy beyond its traditional dependence on manufacturing, but its financial system still operates on a state-directed lend-and-spend model that has generated alarming amounts of debt even as it hinders money from reaching entrepreneurs.
Bad loans are widely expected to soar as the economy continues to slow. At the same time, banks have become i ncreasingly dependent on raising money through often speculative investment products that they keep off their balance sheets, making it hard to assess the risks they pose to financial stability.
Yet other appointments suggested a commitment to the status quo. The state news media Friday said the No. 2 officials at the National Development and Reform Commission, China’s top economic planning body, and the Ministry of Commerce, which oversees trade, among other things, were named to succeed their retiring bosses, who were also 65.
The choice to run the National Development and Reform Commission, He Lifeng, served from 2009-12 as the deputy secretary of Tianjin. He helped oversee the construction of a forest of office and residential skyscrapers at the city’s fringes that have barely been occupied and have become one of the many symbols of China’s dependence on investmentled growth that is often wasteful.
China could signal i ts commitment to a financial overhaul with any changes at the top of its central bank, the People’s Bank of China. Zhou Xiaochuan, widely considered a reformist voice in China, is more than two years past retirement age, so predicting his departure has become a popular parlour game in China’s financial world. Appointing Yi Gang, Zhou’s deputy, to the top could be seen as an endorsement of Zhou’s gentle advocacy of reform, though elevating Yi could also reflect Beijing’s lack of interest in rocking the boat.
The shuffle comes at a delicate time for China’s financial leadership. Its competence was called into question in 2015 when conflicting signals contributed to a stock market crash and increased government controls. Experts say either the banking commission or the central bank could get added responsibilities should China try to streamline financial regulation.
Guo faces an immediate challenge in reasserting the authority of the banking commission, also known as the CBRC. Like the Federal Reserve in the United States, the Chinese central bank has clawed away from banking regulators a considerable part of their authority to oversee whether banks are lending prudently. The Chinese central bank has also played an increasingly critical role in fighting money laundering and capital flight.
“An appointment as the head of the CBRC today is not as significant as the same appointment five years ago because the People’s Bank of China has taken over many of the regulatory oversight tasks,” said Victor Shih, a specialist in Chinese finance and factional politics at the University of California at San Diego.
China could tip its hand on that matter after the annual gathering of the National People’s Congress, its top lawmaking body, which begins March 5. It may then hold a top- level financial work conference in April on reorganization that was originally planned for January or February.
Some experts viewed the recall of Guo to Beijing as a sign that policy changes are coming.
“It’s probably a signal for fundamental reforms in China’s financial regulatory framework,” said Zhu Ning, a Tsinghua University economist.