China merges bank, in­sur­ance reg­u­la­tors to tackle risk

Jamaica Gleaner - - FINANCE -

CHINA’S GOV­ERN­MENT an­nounced plans Tues­day to create a newly pow­er­ful reg­u­la­tor to over­see scan­dalplagued bank­ing and in­sur­ance in­dus­tries as they try to re­duce debt and fi­nan­cial risk.

The move is in line with the rul­ing Com­mu­nist Party’s ef­forts to gain more di­rect con­trol over the state-dom­i­nated econ­omy and re­duce fi­nan­cial risk fol­low­ing a run-up in debt that prompted global rat­ing agen­cies to cut Bei­jing’s gov­ern­ment credit rat­ing last year.

The new agency, a merger of sep­a­rate Cab­i­net bod­ies that over­see banks and in­sur­ers, will be charged with “pre­vent­ing and dis­solv­ing fi­nan­cial risks”, said the plan sub­mit­ted to the cer­e­mo­nial na­tional leg­is­la­ture for en­dorse­ment. It did not men­tion the third fi­nan­cial reg­u­la­tor, which over­sees the se­cu­ri­ties mar­ket.

Sep­a­rately, the plan also calls for cre­at­ing a na­tional mar­ket reg­u­la­tor, draw­ing in an­ti­monopoly, pric­ing and other pow­ers from food and drug, in­dus­try and prod­uct qual­ity agen­cies.

Bei­jing has launched a series of reg­u­la­tory over­hauls over the past two decades, cre­at­ing and merg­ing agen­cies, to re­spond to the growth of China’s vast, sta­te­owned bank­ing, in­sur­ance and fi­nance in­dus­tries.

The l at­est an­nounce­ment fol­lows Bei­jing’s prom­ise i n Novem­ber to raise and even­tu­ally elim­i­nate lim­its on for­eign own­er­ship of banks, in­sur­ers and se­cu­ri­ties firms.

COM­PLEX AC­TIV­ITY

The di­vi­sion of re­spon­si­bil­ity among mul­ti­ple fi­nan­cial agen­cies prompted con­cern reg­u­la­tors were fail­ing to keep track of in­creas­ingly com­plex ac­tiv­ity by banks, in­sur­ers and com­pa­nies.

De­spite be­ing mostly sta­te­owned, Chi­nese banks, in­sur­ance and se­cu­ri­ties firms are highly au­tonomous. Bosses of the big­gest state-owned in­sti­tu­tions of­ten rank higher in the rul­ing party than the of­fi­cials in charge of reg­u­la­tory agen­cies, al­low­ing them to defy rules.

Lack of co­or­di­na­tion ham­pered the of­fi­cial re­sponse to a stock mar­ket col­lapse in 2015.

The in­sur­ance in­dus­try has been shaken by cor­rup­tion scan­dals and com­plaints of reck­less spec­u­la­tion in stocks and real es­tate. Banks f ace com­plaints they ob­scure their lev­els of lend­ing and risk.

Reg­u­la­tors seized con­trol of pri­vately owned An­bang In­sur­ance Group, one of China’s big­gest in­sur­ers, in Fe­bru­ary and said they were act­ing to pro­tect its sol­vency. Two other in­sur­ers were pe­nalised ear­lier fol­low­ing com­plaints of reck­less spec­u­la­tion.

The top in­sur­ance reg­u­la­tor, Xiang Junbo, was ex­pelled from the rul­ing party in Septem­ber and charged with tak­ing bribes. Au­thor­i­ties have yet to give fur­ther de­tails.

Some ma­jor com­pa­nies that have run up multi­bil­lion-dol­lar debts to banks face pres­sure to pay those down while oth­ers face ques­tions about t heir sol­vency.

China’s to­tal cor­po­rate, lo­cal gov­ern­ment and house­hold debt surged to the equiv­a­lent of more than 270 per cent of an­nual eco­nomic out­put, high for a de­vel­op­ing coun­try, af­ter Bei­jing used re­peated in­fu­sions of credit to shore up eco­nomic growth f ol­low­ing the 2008 global cri­sis.

Au­thor­i­ties an­nounced plans last year to al­low some sta­te­owned com­pa­nies to pay down debt us­ing stock but few have done so.

Of­fi­cials speak­ing this week at the an­nual meet­ing of the cer­e­mo­nial leg­is­la­ture have tried to defuse pub­lic con­cern. The cen­tral bank gover­nor, Zhou Xiaochuan, said the rise of debt has slowed and risk is man­age­able.

The lat­est change would bring to­gether the China Bank­ing Reg­u­la­tory Com­mis­sion and the China I nsurance Reg­u­la­tory Com­mis­sion.

AP

Peo­ple walk by an An­bang In­sur­ance of­fice in Bei­jing, China, in this June 14, 2017 photo.

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