Analysis: China’s new financial watchdog more action-oriented

China Plus Published: 2017-07-21 18:41:58
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By China Plus commentator Luo Dan

Domestic and international observers are mulling over the possible repercussions of a key financial conference in China, with financial stability a key concern according to some media reports. 

Addressing the National Financial Work Conference that ended last Saturday, Chinese President Xi Jinping announced the setting up of a special commission under the State Council to oversee financial stability and development.

President Xi pledged the country would resolutely deepen financial reforms including improving financial regulation coordination and shoring up weak links in supervision.

China's rapidly expanding financial industry is being placed under greater regulatory scrutiny as authorities step up efforts to curb widespread malfeasance in the sector.[Photo: Xinhua]

China's rapidly expanding financial industry is being placed under greater regulatory scrutiny as authorities step up efforts to curb widespread malfeasance in the sector.[Photo: Xinhua]

He also said China's central bank would play a stronger role in macro prudential management and guarding against systemic risks.

The conference has been convened every five years since 1997 and is widely seen to set the tone for financial reforms.

Although details of the Financial Stability and Development Committee are yet to be published, banking officials and observers have already warmed to the new body.

The People’s Bank of China, the country’s central bank, was among the first government agencies to reaffirm the importance of such a new financial institution.

Lu Lei from the bank’s financial stability department says the new commission will help coordinate different financial regulators, address relevant loopholes and guard against systemic risks in the financial sector. All are aimed at better propping up China’s real economy.

According to Lu, systemic risk is generally controllable; however, risks fueled by non-performing loans, liquidity, shadow banks, property bubbles, government debts and Fintech are on the rise.

Observers say financial risks could also come from overseas, partially due to global uncertainties, such as the policies of US President Donald Trump, raised interest rates by the Federal Reserve, Britain’s divorce from the European Union, and economic recession in some developing countries. All these could trigger risk aversion and result in a sharp price increase or decrease in commodities like gold, oil and iron ore. All these factors place greater pressure on China to tackle financial risks.

The risks are also reflected by shocking data. Media reports say China’s financial assets totaled some 330 trillion yuan in 2016, while the country’s gross domestic production (GDP) stood at 67 trillion yuan last year. Therefore, de-leveraging, or paying off existing debt, is a must to stabilize the financial sector. 

The new financial committee is seen by many observers as a super-regulator. Its proper title is the ‘Financial Stability and Development Committee of the State Council,’ China’s cabinet. The other four players in the country’s existing financial supervisory system are also ministerial-level, including the People’s Bank of China, the China Insurance Regulatory Commission, the China Banking Regulatory Commission and the China Securities Regulatory Commission.

A higher-level government institution is usually imbued with great power and that is also true of the new Financial Stability and Development Committee. 

Before the inception of the new committee, the People’s Bank of China was responsible for helping to organize a quarterly meeting with the three regulators in securities, banking and insurance sectors.  

However, analysts say such a mechanism is more discussion-oriented and less inclined towards actually making decisions. That’s to say, the four participants could reach consensus during the meeting but no one is going to oversee its implementation, let alone enforce any action. That is mainly because the central bank is at the same administrative level as the other three, and none can hold another accountable.

The new financial committee will surely address this problem, as accountability is one of the key words raised by China’s top leadership. Under this principle, judicial officials will be punished for mishandling of legal cases and local officials will be subject to naming-and-shaming or demotion for poorly implementing plans of central authorities, including environmental protection. Therefore, the newly established committee will serve as deterrent to both financial companies and regulators.

Analysts say full-coverage supervision is expected to be another major feature of the Financial Stability and Development Committee, as no single regulator is capable of monitoring the complete capital flow in China’s complex financial system. For instance, the new committee could help plug loopholes that some shadow banks, or non-banking intermediaries, have exploited.

There are some reassuring signals for China’s economic performance. Soon after the conclusion of the National Financial Work Conference, the Chinese authorities released the latest economic figures with a growth rate of 6.9 percent in the first half of 2017, well above the government's full-year target of around 6.5 percent. 

In light of this, it’s advisable that the newly established financial committee should contribute to this good momentum and take tangible action to serve the real economy. That could be done by helping channel more financial resources to the most needed sectors such as small and startup businesses, rural development, the country’s drive to push development via innovation and fight against poverty.

To sum up, actions speak louder than words. The new committee has a lot to do, not only in terms of financial stability, but to also encourage broader economic and social stability, in the world’s most populous country. 

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LU Xiankun Professor LU Xiankun is Managing Director of LEDECO Geneva and Associate Partner of IDEAS Centre Geneva. He is Emeritus Professor of China Institute for WTO Studies of the University of International Business and Economics (UIBE) and Wuhan University (WHU) of China and visiting professor or senior research fellow of some other universities and think tanks in China and Europe. He also sits in management of some international business associations and companies, including as Senior Vice President of Shenzhen UEB Technology LTD., a leading e-commerce company of China. Previously, Mr. LU was senior official of Chinese Ministry of Commerce and senior diplomat posted in Europe, including in Geneva as Counsellor and Head of Division of the Permanent Mission of China to the WTO and in Brussels as Commercial Secretary of the Permanent Mission of China to the EU. Benjamin Cavender Benjamin Cavender is a Shanghai based consultant with more than 11 years of experience helping companies understand consumer behavior and develop go to market strategies for China. He is a frequent speaker on economic and consumer trends in China and is often featured on CNBC, Bloomberg, and Channel News Asia. Sara Hsu Sara Hsu is an associate professor from the State University of New York at New Paltz. She is a regular commentator on Chinese economy. Xu Qinduo Xu Qinduo is CRI's former chief correspondent to Washington DC, the United States. He works as the producer, host and commentator for TODAY, a flagship talk show on current affairs. Mr. Xu contributes regularly to English-language newspapers including Shenzhen Daily and Global Times as well as Chinese-language radio and TV services. Lin Shaowen A radio person, Mr. Lin Shaowen is strongly interested in international relations and Chinese politics. As China is quite often misunderstood in the rest of the world, he feels the need to better present the true picture of the country, the policies and meanings. So he talks a lot and is often seen debating. Then friends find a critical Lin Shaowen criticizing and criticized. George N. Tzogopoulos Dr George N. Tzogopoulos is an expert in media and politics/international relations as well as Chinese affairs. He is Senior Research Fellow at the Centre International de Européenne (CIFE) and Visiting Lecturer at the European Institute affiliated with it and is teaching international relations at the Department of Law of the Democritus University of Thrace. George is the author of two books: US Foreign Policy in the European Media: Framing the Rise and Fall of Neoconservatism (IB TAURIS) and The Greek Crisis in the Media: Stereotyping in the International Press (Ashgate) as well as the founder of, an institutional partner of CRI Greek. David Morris David Morris is the Pacific Islands Trade and Investment Commissioner in China, a former Australian diplomat and senior political adviser. Harvey Dzodin After a distinguished career in the US government and American media Dr. Harvey Dzodin is now a Beijing-based freelance columnist for several media outlets. While living in Beijing, he has published over 200 columns with an emphasis on arts, culture and the Belt & Road initiative. He is also a sought-after speaker and advisor in China and abroad. He currently serves as Nonresident Research Fellow of the think tank Center for China and Globalization and Senior Advisor of Tsinghua University National Image Research Center specializing in city branding. Dr. Dzodin was a political appointee of President Jimmy Carter and served as lawyer to a presidential commission. Upon the nomination of the White House and the US State Department he served at the United Nations Office in Vienna, Austria. He was Director and Vice President of the ABC Television in New York for more than two decades.