FSDC Flags Accelerated Reform of Chinese Policy Banks

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One of China’s top financial authorities has signalled that the country’s policy banks are on track for accelerated reform measures.

The State Council’s Financial Stability and Development Committee (FSDC) said that “deepening reform of policy financial institutions” would be one of the “key issues” for future research into the financial sector at its 53rd meeting convened on 6 July.

At the start of 2021 Beijing’s “Government Work Report” also called for “driving separated categories and accounts for policy banks,” while two years ago in 2019 FSDC called for “effectively employing the counter-cyclical role of policy financial institutions” when it came to economic upgrades and high-quality growth.

Domestic analysts say that the latest remarks from FSDC flags the acceleration of plans for a major overhaul of the big three Chinese policy banks (Agricultural Development Bank of China, the China Development Bank and Exim Bank of China) that was first unveiled more than five years ago.

In 2015 the State Council approved the “Policy Bank Reform Implementation General Plan” (政策性银行改革实施总体方案), which called for “clarifying policy and individual operating lines, and strengthening the policy role positioning of the policy banks.”

The most recent meeting of the FSDC called for “one policy for each bank, as well as “implementing category-based management of operations, and separated account settlement.”

Analysts say that this is means the implementation of separated accounts management with different regulatory standards on the part of those financial institutions that simultaneously run two separate business lines, as opposed to an business model involving parent companies and subsidiaries.

“The implementation of separate accounts management can fully employ the role of the policy banks, and at the same time can better employ sustainable finance to providing feedback supplementation to policy operations,” said Zeng Gang (曾刚), deputy-chair of the National Institution of Finance & Development (NIFD) to Diyi Caijing.

FDSC also highlighted the need for “orderly increases to transparency, strengthening of capital restraints, strengthening of risk management, improvements to incentive mechanisms, and better employing the key role of policy financial institutions with regard to servicing the real economy and servicing national strategy.”

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