China’s Banking Regulator Highlights Success of Risk Containment Efforts in 2020, Focal Points for Policy in 2021

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The head of China’s banking regulatory has touted the progress of effort to contain risk in the Chinese financial system, while also outlining key work points for the rest of 2021.

At a press conference held on 2 March Guo Shuqing (郭树清), head of the China Banking and Insurance Regulatory Commission (CBIRC), said that China had succeeded in performing “targeted bomb disposal” of key risk issues in the financial system, including:

  1. Marked declines in the financial leverage ratio, and a fundamental shift away from blind expansion of financial assets. During the period from 2017 to 2020 the total assets of Chinese banks grew by 8.3% each year on average, while the assets of Chinese banks rose by 11.4% per annum on average, for roughly half the growth rate compared to the period from 2009 to 2016. Guo said that the percentage of interbank assets that “circulated emptily” in the financial system had fallen considerably.
  2. Identification and disposal of non-performing assets in the banking system has made major progress. The period from 2017 to 2020 saw the disposal of 8.8 trillion yuan in non-performing loans, exceeding the total for the preceding 12 year period.
  3. The orderly dismantling of Chinese shadow banking. Shadow banking in China has plunged by 20 trillion yuan from its peak historic value.
  4. Severe punishment of financial crimes, the gradual disposal of risk in relation to illegal financial groups. Guo said that a large number of illegal fund-raising cases had been effectively disposed of, while Internet financial risk conditions had improved.
  5. Prompt and effective response to external risk shocks, and maintaining the strong resilience of the Chinese financial system.
  6. Effective containment of real estate bubbles and financialization. In 2020 real estate loan growth fell below the growth of all lending for the first time in eight year.
  7. Containment of risk in relation to the growth of covert local government debt, orderly disposal of outstanding risk.
  8. Steady disposal of large and medium-sized enterprise debt risk. As of the end of 2020 China had established at total of 20,000 debt committees, and implemented 1.6 trillion yuan in market-based debt-equity swaps, with over 500 large and medium-sized enterprises participating in joint credit trials.

Guo said that in 2021 – the inaugural year of China’s 14th Five Year Plan, CBIRC would focus on the following work:

  1. Improvement to systems and mechanisms for finance to effectively support the real economy, targeted support for key areas including independence in science and technology; advanced manufacturing, private enterprise, micro-and-small enterprise, rural village revival and green development.
  2. Deepening of financial sector supply-side structural reforms, firm establishment of the concept that “the client is the centre, the market is the guide;” the nurturing and growth of more specialised and distinct financial institutions, the further development of bank products that satisfy the needs of the general public, and the standardised development of insurance services.
  3. Make risk prevention the perennial theme of the financial sector, and never waver in the control and dissolution of various forms of financial risk. Strengthen the rule of law in finance and improve long-term mechanisms.
  4. Maintain a market environment with fair competition, strengthen anti-trust efforts and prevent the disorderly expansion of capital. Ensure that financial innovation advances under the precondition of prudential regulation.
  5. Implement financial market and institutional reforms at an even deeper level, drive financial opening at a higher level, expedite the circulation of factors of production, stimulate market vitality.
  6. Persevere in comprehensively and strictly following the party, deeply undertake the struggle against financial corruption, strengthen internal management and self-strengthening, and create an “iron army” of sincere, clean and responsible regulators.

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