China's new finance regulator will gain real power

Thursday, July 27, 2017

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.
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