Liu He Flags Future Regulatory Thrust at First Meeting with Financial Authorities

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Chinese vice premier Liu He (刘鹤) has stressed the urgent need for greater risk prevention and improved administrative coordination at his first meeting with financial regulators followed his latest political appointment.

Liu, a member of the Chinese politburo and one of President Xi Jinping’s closest economic advisors, said at the meeting with financial regulators on 27 March that “prosecuting the war for the prevention and dissolution of financial risk is the priority of priorities for current financial work.”

“[We] must strengthen the overall coordinating role of the State Council’s Financial Stability and Development Commission, effectively control rhythm and vigour, and expedite and stable and healthy development of finance.

“[We] must steadily and methodically advance institutional reform work, accelerate adjustments to banking and insurance regulatory responsibilities, strengthen overall regulatory capability, and pragmatically raise the level of the financial sector’s provision of services to the real economy.

Liu He’s remarks arrive followed a far-reaching overhaul of China’s financial regulatory system at the Two Sessions in March, alongside key changes in senior personnel.

The China Banking Regulatory Commission (CBRC) and the China Insurance Regulatory Commission (CIRC) have been merged into a single authority, while the role of the People’s Bank of China (PBOC) – the Chinese central bank – has been expanded to encompass the drafting of provisions in addition to monetary policy and macro-prudential regulation.

Yi Gang, formerly the deputy governor of PBOC, has been appointed governor of the central bank following Zhou Xiaochuan’s 15 year tenure in office.

Guo Shuqing, formerly the head of CBRC, has been appointed head of the China Banking and Insurance Regulatory Commission, as well as party secretary of PBOC, making him one of the most influential figures in the Chinese financial system.

Both Yi and Guo answer to Liu He, who is considered to be Xi Jinping’s most trusted economic advisor.

Financial risk and regulatory reform have been key focal areas for Liu’s research efforts as an economist prior to his appointment to one of China’s senior-most political positions.

In 2012 Liu published a paper in “Bijiao”(比较)magazine entitled “A Comparative Study of Two Global Economic Crises” (两次全球大危机的比较研究), which provided an in-depth analysis of the 1997 Asian Financial Crisis as well as the 2008 Global Financial Crisis alongside policy prescriptions.

While the study generated little attention initially, it won China’s prestigious Sun Yefang Economics Prize in 2014, and has since become one of the most widely read studies in Chinese financial circles.

2015 saw key problems in China’s financial system become more acute, including the proliferation of “empty transfers” between financial institutions, a surge in hidden local government debt, and sky-high leverage in the corporate sector, especially amongst state-owned enterprises.

In December of that year Liu He wrote the forward to the Chinese edition of “Financial Supervision in the 21st Century,” in which he pointed out that financial regulation needs to be forward looking, and financial regulatory systems need to be adaptable.

According to the forward financial regulation needs to have “teeth” instead of being just talk, while reform and optimisation of regulation is needed in order to firmly establish a risk mentality and crisis response awareness.

 

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