State-owned media says the launch of new rules that supplement sweeping asset management regulations launched earlier this year will in no way diminish the pace of China’s ongoing deleveraging campaign.
On 20 July the People’s Bank of China (PBOC), the China Securities Regulatory Commission (CSRC) and the China Banking and Insurance Regulatory Commission (CBIRC) jointly issued the “Notice Concerning Further Clarification of Matters in Relation to Guidance Opinions on Standardisation of Financial Institution Asset Management Operations” (关于进一步明确规范金融机构资产管理业务指导意见有关事项的通知).
The Notice serves to supplement the far-reaching “Guidance Opinions Concerning Standardisation of Asset Management Operations by Financial Institutions” (关于规范金融机构资产管理业务的指导意见) launched at the end of April, and provide clarification on specific operations during the transitional period for the Opinions which runs until 2020.
The Notice covers three key areas, including the investment scope of publicly offered asset management products, valuation methods for relevant products during the transitional period, and macro-prudential policy arrangements.
In addition to primary investment in standard debt assets and listed equity, the Notice stipulates that funds raised via publicly offered asset management products may also be “appropriately” invested in non-standard debt assets, as long as the regulatory stipulations of the Guidance Opinions concerning the maturity, quotas and information disclosures of non-standard investments are satisfied.
The Notice further stipulates that following the conclusion of the transitional period outstanding non-standard investments may be transferred back to the balance sheets of banks, with PBOC making “reasonable adjustments” to relevant parameters during macro-prudential assessments.
Commercial banks will also receive support for the supplementation of capital via the issuance of tier II bonds, in order to abet the shift of off-balance sheet assets back onto balance sheets.
On the same date CBIRC issued the draft version of the “Commercial Bank Wealth Management Operations Supervisory and Administrative Measures” (商业银行理财业务监督管理办法) and CSRC issued the draft version of the “Securities Futures Operating Entity Private Asset Management Operations Administrative Measures” (证券期货经营机构私募资产管理业务管理办法), to further supplement the Guidance Opinions.
According to the state-run Economic Information Daily the supplementary regulations do not mark a change in the overall pace or direction of China’s ongoing deleveraging campaign.
The focus of the new raft of supplementary rules is instead to “clarify a number of uncertainties during the implementation of new asset management rules, strengthen operability, stabilise market expectations, guide the steady transition of financial institutions, and ensure the stable operation of financial markets.”
Shi Weixing (士魏星) said that the Chinese central bank was using a “principled loosening” to correct the “excessive strictness and tightness” of regulatory implementation.
“The issuance of a loosening signal to the market will help to resolve the liquidity pressure and excessive risk aversion on the market at present.”
Huang Yiping (黄益平), vice-head of the National Development Research Institute at Peking University, said that the new asset management rules provide the market with an ample “buffer” in the form of the transitional period.
However, financial institutions do not possess a clear understanding of concrete operational requirements and their interpretations of specific provisions are in error.
“In order to avoid erroneous understandings of policy or potential deviations during the implementation of the new rules, financial institutions have either adopted an excessively urgent or tight ‘one fell swoop’ method, or adopted a passive wait and see attitude, which is significantly worsening the nervous mood of financial markets.”
According to Huang the new asset management regulations will see a comprehensive “re-moulding” of asset management operations on China’s financial markets, which entails detailed clarification and practical operating plans.
“The direction of deleveraging policy will remain firmly unchanged from beginning to end amidst the implementation of detailed rules for the new asset management regulations,” said Huang.