Chinese regulators are engaging coordinated efforts to advance reform of China’s financial system, as part of efforts to prevent the onset of systemic risk.
At its 40th Collective Study Session on Maintaining National Financial Security held on 25 April, the Chinese Politburo declared that it would deepen financial reform, improve the financial system, advance administrative reform of financial sector companies, strengthen prudential and compliance awareness, and advance the practical undertaking of risk management liability by financial institutions.
Speaking to China Securities Journal Huang Zhilong, the chairman of the Suning Finance Macroeconomic Research Centre, said that the primary purpose of the current round of reforms would be the prevention of systemic financial risk, via the establishment of marketised financial risk prevention systems and enabling financial institutions to bear responsibility for risk management.
In Huang’s opinion this would be of benefit to companies in the real economy seeking to obtain capital support from financial institutions, and enable financial institutions themselves to more effectively control NPL risk.
“Overall, preventing systemic risk is undoubtedly the key work point this year, as well as a major goal for financial regulators this year,” said Huang.
Huang pointed out that all of China’s key regulatory bodies are engaging in coordinated efforts to accelerate reforms.
“At present, irrespective of whether it’s the central bank’s stable, neutral monetary policy or channels for shrinking the central bank’s balance sheet, it’s all directed at expediting deleverage of the financial sector and preventing systemic risk,” said Huang.
“What’s more important is that the series of regulatory measures from China Banking Regulatory Commission, the China Securities Regulatory Commission and the China Insurance Regulatory Commission form a combination with central bank monetary policy.
“It can be said that the era of major financial regulation and regulation coordination and cooperation has arrived, with the main goal of preventing systemic financial risk and spurring the financial sector to service the real economy.”
According to Huang priority focal points for financial reform this year would be strengthening of financial regulation, curbs on non-compliant innovative financial services, and prevention of the spread of bubbles in the financial system.
Regulators would also strengthen reforms of corporate administration for financial companies and the establishment of risk control and prevention measures amongst financial institutions, as part of efforts to deal with weak risk awareness amongst members of industry.
A final area of emphasis will be the establishment of marketised and lawful risk and debt default handling mechanisms, which were feasible means for the prevention of systemic financial risk.