China concerned about its financial markets

March 19th, 2018 by Hubert Fromlet, Kalmar

Political issues dominated the 13th National People’s Congress (NPC), topped by the constitutional reform giving China’s leader Xi Jinping the possibility to remain in office also beyond 2022 which would not have been possible without this constitutional amendment. The re-election of Xi as China’s president and Prime Minister Li Keqiang’s re-endorsement were, of course, also important political events – not to forget the establishment of the new corruption-fighting super agency named National Supervision Commission.

When applying a purely economic and financial view on the results of the NPC, the unofficial upgrading of financial concerns and the increase of power for China’s central bank – the People’s Bank of China (PBoC) – seem to be the most important news to consider. Sure, one could read about quite some sharpened warnings by Xi and Li already in recent months – warnings that also were stressed very recently by the multinational central bank of the central banks, the BIS in Switzerland (www.bis.org/publ/qtrpdf/r_qt1803e.htm). But this time was – or rather is – different.

Despite the fact that official China tries to play down the very strong concerns of the BIS – where China by the way is a member – the very clear strengthening of the PBoC during the NPC convergation demonstrates all the same that China’s political leadership now worries more about the state of the financial sector than before. Now, the PBoC will be responsible for the macroprudential supervision of both China’s banks and insurance companies; it has also received the mandate to implement supervisory laws and regulations. For better decision-making, supervision of banks and insurance companies will be merged into the so-called China Banking and Insurance Regulatory Commission (CBIRC) under the aegis of the PBoC. The objective is obviously to create more efficient early warning signals and to implement well-working tools against misleading developments in the financial sector.

Altogether, the growing official awareness of structural problems in the financial sector and the approved improvements and changes of financial supervisory institutions have to be considered as positive. However, improvements of transparency should be achieved as well – whenever necessary and/or appropriate.

During the days of the NPC, a lot has been said by political leaders about the need of ever improving confidence. Better information on non-performing loans (NPL), shadow banks, new financial products and their risks should be part of such a strategy. The PBoC has now a good chance to contribute to a confidence-increasing development if China’s political leadership really wants to support such a positive change – and if a modern and forward-looking PBoC leader will succeed retiring, well-respected Governor Zhou Xiaochuan.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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