Observers say the appointment of Guo Shuqing to two of the top positions in China’s revamped financial system marks the the emergence of a “Chinese-style financial regulation.”
China’s State Council unveiled a far-reaching shake up of the country’s financial regulatory system at the meeting of the Two Sessions in March, with the merger of the China Banking Regulatory Commission and the China Insurance Regulatory Commission, as well as the expansion of the role of the People’s Bank of China (PBOC) – the Chinese central bank, to encompass the drafting of banking and insurance rules in addition to monetary policy and macro-prudential regulation.
Beijing has since appointed Guo Shuqing, former chair of the China Banking Regulatory Commission, as head of the merged banking and insurance authority as well as party secretary of PBOC – a newly created role which gives him authority over central bank governor Yi Gang.
Guo and Yi are turn responsible to Liu He – a rising star in China’s political scene who is a member of the politburo standing committee as well as one of Xi Jinping’ most trusted economic advisors.
The move confers Guo with immense power over the Chinese financial system, giving him oversight of banking regulation and insurance regulation, as well as monetary policy and macro-prudential regulation.
Guo is a veteran official who previously served as the governor of Shandong province, and made a return to the financial regulatory system in February last year with his appointment as head of CBRC.
One official with the Chinese central bank said to 21st Century Business Herald that Guo’s recent ascent is part of efforts to “strengthen communication and coordination between financial regulators, reduce costs, raise efficiency, and fundamentally win the war for the prevention and dissolution of financial risk.”
“This is likely the logic behind [these] personnel appointments – the use of personnel arrangements to improve the system, as well as what some people understand to be a ‘Twin Peaks’ [regulatory model].”
Observers have pointed to the “Twin Peaks” model of financial regulation adopted by the UK as an inspiration for the merger of China’s banking and insurance authorities, especially given that central bank officials made reference to it during the Two Sessions.
The move saw the abolition of the UK’s Financial Services Authority, and the establishment of the Financial Conduct Authority and the Bank of England’s Prudential Regulation Authority as the two chief authorities responsible for the regulation of the finance sector.
Niu Muhong, a PBOC researcher, pointed to the benefits of the Twin Peaks model in essay, which he said involved the conversion of the Bank of England “super central bank” encompassing monetary policy, macro-prudential regulation and micro-prudential regulation.
According to other observers, however, the latest overhaul of China’s financial system heralds the arrival of “Chinese-style financial regulation” that is tailored to meet the country’s specific circumstances.
“I feel that overall there has been no copying of any Western framework,” said Lu Zhengwei (鲁政委), chief economist for Industrial Bank Co. “[This] is based on China’s national conditions, and is a uniquely Chinese balanced design.”
Former PBOC governor Zhou Xiaochuan said on 9 March that any institutional reforms would primarily be based on China’s own specific circumstances, but that that the Chinese central bank had examined various financial regulatory systems abroad, and undertook research into the UK’s Twin Peaks model.
Members of industry point out that the rationale for the merger of the banking and insurance regulators lies in the fact that both sectors engage in indirect financing, as opposed to the direct financing of the securities sector.
Capital constraints thus lie at the core of the regulation of both the banking and insurance sectors, and a merger of their respective authorities is expected to result in an increase in regulatory efficiency.