China's new finance regulator will gain real power

Subject

Reform of financial regulation in China.

Significance

The National Financial Work Conference, a secretive five-yearly meeting that decides on major financial reforms, was finally held on July 14 and 15, after being delayed twice. The Conference established a Financial Stability and Development Committee under the State Council that will work to ensure better regulatory coordination to tackle debt and shadow banking risks.

Impacts

• 'Financial reform' now means regulation rather than opening; measures such as renminbi internationalisation will be slower and more prudent.
• More heads will roll in the financial sector (public and private), given enhanced accountability for wrongdoing or risk-prone actions.
• Foreign financial institutions will need to rethink their government relations strategy and readjust to the role of the new stakeholder.
• Approvals for stock market listings will sustain their current momentum as direct financing, especially equity financing, is encouraged.
• Local government debt will likely decrease now that local officials have lifelong liability for bad debt-management decisions.