China gets UK's help on finance issues

It seeks advice on plans for a financial super-regulator and improving framework

BEIJING • China has asked Britain for advice on plans to create a financial super-regulator, as it looks to improve financial oversight following last year's stock market crash, sources with knowledge of the talks told Reuters.

The discussions between representatives from China and the UK Foreign Office and Treasury highlight Britain's burgeoning relationship with Beijing on financial issues, notwithstanding last week's gaffe by Queen Elizabeth, who was caught on camera grumbling that Chinese officials accompanying President Xi Jinping on a visit to the UK last year had been "very rude to the ambassador".

The talks signal Beijing's growing willingness to seek outside help to improve regulation of its financial infrastructure, in a bid to increase transparency, reduce systemic risk and stop companies from exploiting loopholes.

Several Chinese and British sources with direct knowledge of the talks said Beijing had sent delegations to London to study the UK regulatory framework, with two sources citing a visit in the first quarter.

UK government representatives also visited Beijing last month.

Weaknesses in Chinese regulation were exposed last summer when China's stock markets lost a third of their value in a month, having soared 150 per cent in the previous 12 months. The government and regulators rushed out a series of measures to arrest the crash, including limiting short-selling, stopping new listings and strong-arming big funds to buy more stocks.

The interventions were widely criticised for overriding market mechanisms, poor inter-agency coordination and creating moral hazard by implying government support.

This is not the first time China has sought foreign help in addressing financial problems at home.

Last July , the People's Bank of China (PBOC), the central bank, was reported to have approached the United States Federal Reserve for advice on handling its tumbling stock markets. The UK Treasury has lobbied hard to become China's partner of choice on a range of financial issues, and the two are collaborating on several economic and financial projects, including a stock trading link between London and Shanghai.

In one of the options currently under discussion, China's top financial regulators would be merged. But the three agencies would still be reporting to the State Council, China's Cabinet.

Another option under consideration would see the new super-regulator report to the PBOC, giving the central bank more power, as in Britain. The PBOC would still report to the State Council, the sources said.

REUTERS

A version of this article appeared in the print edition of The Straits Times on May 16, 2016, with the headline 'China gets UK's help on finance issues'. Print Edition | Subscribe