Look­ing to quell fi­nan­cial risks

Gov­ern­ment Work Re­port shows China’s in­tent to tackle chal­lenges aris­ing from new-age mone­tary prod­ucts

China Daily (Latin America Weekly) - - 13 Business - And

As cryp­tocur­rency bit­coin’s value roller-coasted glob­ally in re­cent months, so did the sleep pat­tern of Bei­jing-based car­goloader Zeng Wen, 27, who dou­bles up as a part-time riskhappy in­vestor.

Zeng used to earn 2,800 yuan ($442.2) in monthly salary be­fore he, armed with no more than rudi­men­tary mar­ket knowl­edge and a smart­phone with 4G mo­bile in­ter­net, started in­vest­ing in vir­tual or dig­i­tal cur­ren­cies in 2017.

Called cryp­tocur­ren­cies, bit­coin and the like have emerged as a rel­a­tively new, if un­reg­u­lated, in­vest­ment class, com­pared to shares, bonds, con­ven­tional cur­ren­cies, pre­cious met­als, com­modi­ties and prop­erty.

Rid­ing his luck and ad­ven­tur­ous spirit, Zeng made a whop­ping 1.2 mil­lion yuan within two months. The no­tional profit boosted his risk ap­petite. But then, bit­coin’s price swung wildly. First, it soared to its all-time high of $19,205 per unit on Dec 18, up about 1,880 per­cent from the be­gin­ning of 2017, ac­cord­ing to data com­piled by Coin­base, an on­line plat­form for trad­ing in dig­i­tal cur­ren­cies. Then, it plum­meted by 45 per­cent within a week.

Be­fore he could cash out, bit­coin plunged fur­ther, and the value of his in­vest­ment, and pre­sum­ably of those of his ilk in China as well as else­where, de­pre­ci­ated sharply.

This raised con­cerns about pos­si­ble mar­ket spec­u­la­tion, fi­nan­cial fraud and po­ten­tial so­cial un­rest. Alarm bells rang in the cor­ri­dors of reg­u­la­tors and gov­ern­ments alike.

In China, Premier Li Ke­qiang lost no time in tak­ing stock of the sit­u­a­tion. On March 5, de­liv­er­ing his an­nual Gov­ern­ment Work Re­port to the na­tional leg­is­la­ture, he said China will strengthen co­or­di­na­tion in fi­nan­cial reg­u­la­tion over emerg­ing sec­tors.

The au­thor­i­ties con­cerned, Li said in his speech, will crack down on il­le­gal fundrais­ing, fi­nan­cial fraud and other il­le­gal ac­tiv­i­ties, adding that reg­u­la­tion of in­ter­net fi­nance will be fur­ther im­proved.

As if tak­ing cue from Premier Li, the gov­er­nor of the coun­try’s cen­tral bank, Zhou Xiaochuan, said at a news con­fer­ence on Fri­day that the Peo­ple’s Bank of China op­posed di­rect trans­ac­tions be­tween the bit­coin and the ren­minbi, its fiat money or the Chi­nese cur­rency. Nor would it en­dorse use of vir­tual cur­ren­cies for re­tail pay­ments.

Zhou echoed sen­ti­ments of some deputies at­tend­ing the two ses­sions that fi­nan­cial prod­ucts like bit­coin en­tered the mar­ket with­out pru­den­tial over­sight, hence a thor­ough scru­tiny is re­quired to as­cer­tain if they could be pro­moted fur­ther with­out jeop­ar­diz­ing the fi­nan­cial sys­tem.

Pre­ven­tion of fi­nan­cial risks is one of the key top­ics of de­lib­er­a­tions at the on­go­ing an­nual sit­tings of the Na­tional Peo­ple’s Congress and the Na­tional Com­mit­tee of Chi­nese Peo­ple’s Po­lit­i­cal Con­sul­ta­tive Con­fer­ence.

Just as well, per­haps, be­cause leg­is­la­tures, gov­ern­ment bod­ies, fi­nan­cial reg­u­la­tors, ex­pert com­mit­tees and an­a­lysts the world over are all busy pon­der­ing ways and means of sus­tain­ing or­der in the global fi­nan­cial sys­tem, so as to avert an­other full-blown cri­sis of the kind wit­nessed in 2008.

“Loop­holes in the fi­nan­cial reg­u­la­tory sys­tem should be fixed, mean­ing tighter fi­nan­cial reg­u­la­tion com­pared with the past (might be nec­es­sary),” said Yang Weimin, deputy head of the Of­fice of the Cen­tral Lead­ing Group on Fi­nan­cial and Eco­nomic Af­fairs, and a mem­ber of the Na­tional Com­mit­tee of the CPPCC.

Yang’s com­ments fol­low re­ported plans by the PBOC and other fi­nan­cial reg­u­la­tors, to rein in cross-bor­der fund out­flows through fi­nan­cial trans­ac­tions re­lated to cryp­tocur­ren­cies like bit­coin (which was in­vented in 2009, the first type of dig­i­tal coin and the most pop­u­lar one) and ini­tial coin of­fer­ings or ICOs (which are used by tech star­tups mainly to raise funds in the man­ner of ini­tial pub­lic of­fer­ings).

Fresh mea­sures are ex­pected to be launched when con­di­tions are ripe. Bloomberg re­ported quot­ing uniden­ti­fied of­fi­cials that reg­u­la­tors are also plan­ning to scru­ti­nize Chi­nese banks and on­line pay­ment ac­counts of busi­nesses and in­di­vid­u­als sus­pected of fa­cil­i­tat­ing trades on off­shore cryp­tocur­rency venues. The ac­count-own­ers could have their as­sets frozen or be blocked from the do­mes­tic fi­nan­cial sys­tem.

Any such mea­sures would seek to cut off one of the few re­main­ing av­enues for Chi­nese cit­i­zens to buy dig­i­tal as­sets.

In Septem­ber last year, the PBOC banned ICOs af­ter it was re­vealed in a re­port of the Na­tional In­ter­net Fi­nan­cial Risk Anal­y­sis Tech­nol­ogy Plat­form that as of July 19, 65 ICOs had al­ready raised 2.62 bil­lion yuan in China from 105,000 in­vestors.

Sens­ing trou­ble ahead, the PBOC took a pre-emp­tive mea­sure by ask­ing do­mes­tic trad­ing plat­forms for cryp­tocur­ren­cies to halt op­er­a­tions. A PBOC state­ment said ICO, in essence, is a way of “unau­tho­rized and il­le­gal pub­lic fundrais­ing” which is sus­pected of be­ing as­so­ci­ated with il­le­gal ac­tiv­i­ties like fi­nan­cial fraud and pyra­mid schemes.

ICO plat­forms should not en­gage in ex­change ser­vices be­tween fiat cur­ren­cies, vir­tual coins and to­kens, the PBOC said in its state­ment.

The move is con­sid­ered a water­shed in the de­vel­op­ment of vir­tual cur­ren­cies in China. But a few re­cal­ci­trant in­di­vid­ual Chi­nese in­vestors turned to over­seas trad­ing plat­forms all the same.

Such plat­forms “pose risks

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