China's central bank to get bigger role?

Meeting of financial regulators set to focus on greater coordination role for PBOC: Experts

BEIJING • China's financial regulators are gathering in Beijing in a once-in-five-years huddle that many expect will formalise a greater coordination role for the central bank, but will stop short of pushing changes that could potentially destabilise the economy.

The National Financial Work Conference is strictly closed-door, but its outcome will be widely watched.

At the inaugural 1997 meeting, Beijing set up China's insurance regulator, while 2002 saw the creation of the banking regulator. Sovereign wealth fund China Investment Corp was formed after 2007's gathering.

The most recent meeting in 2012 yielded no significant policy change as the country's top leadership went through a once-in-a-decade transition, with Mr Xi Jinping replacing Mr Hu Jintao as China's president.

Ahead of the once-in-five-years congress of the Communist Party in autumn this year, stability of the economy and society is key, with Mr Xi expected to further consolidate his hold on power.

Economists say the meeting this weekend will likely focus on how the central bank can better coordinate with the China Banking Regulatory Commission (CBRC), the China Securities Regulatory Commission (CSRC) and China Insurance Regulatory Commission (CIRC) to tackle weaknesses in the financial system.

"We can expect the People's Bank of China (PBOC) to be given more power to oversee and coordinate, given the growing amount of financial products that cross the boundaries of the three regulators," said China economist at Capital Economics Julian Evans-Pritchard.


The core of the meeting is to defuse current risks, and the defusing itself shouldn't cause any systemic and regional risks.

DR ZHANG MING, chief economist at Ping An Securities.

"This shift is positive as the PBOC is probably the best placed to do this since it had the broadest mandate of ensuring financial stability."

PBOC, CBRC, CSRC and CIRC did not immediately respond to requests for comment.

Investors have long supported the idea of a unified body to oversee various regulators that control different parts of the financial system, though there is little sign that a super- merger is imminent.

In 2015, a poorly coordinated response to the stock market crash not only failed to end the bloodshed, but the government's competence also came under scrutiny. Premier Li Keqiang openly criticised regulators for not responding sufficiently.

In March this year, CBRC's new chief Guo Shuqing said the banking regulator was collaborating with other regulators to create a framework to close loopholes in rules for cross-market financial products.

"Different regulators, different laws, different rules have caused some chaos," he said.

Economists expect this weekend's meeting to set the tone for future financial regulations, but do not see major policy shifts. "The core of the meeting is to defuse current risks, and the defusing itself shouldn't cause any systemic and regional risks," said Ping An Securities chief economist Zhang Ming.

China's top leadership sees curtailing financial risks as a top priority this year after a sharp rise in overall leverage. The meeting is expected to tackle China's US$7.7 trillion (S$10.6 trillion) shadow banking sector.

The loosely regulated industry includes non-bank forms of credit such as trusts and wealth management products (WMPs). Earlier this year, PBOC included banks' off-the-balance-sheet WMPs in its examination of broad credit in its Macro Prudential Assessment for the first time, to give the authorities a better sense of potential risks to the financial system.

Economist also say further opening up the financial sector will be on the meeting's agenda.


A version of this article appeared in the print edition of The Straits Times on July 15, 2017, with the headline 'China's central bank to get bigger role?'. Print Edition | Subscribe