China’s Banking Regulator Highlights Risk Prevention, Containment of Disorderly Capital, Stronger Firewalls Between Industry and Finance

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The head of China’s banking and insurance regulator has highlighted its efforts across a slew of policy areas in 2021.

Speaking at a State Council press conference held on 2 March, Guo Shuqing, chair of the China Banking and Insurance Regulatory Commission (CBIRC), said that the agency had of late “made firm strides” in six areas of regulatory work, including:

  1. Continually preventing and dissolving financial risk. Guo pointed to a decline of around 8 percentage points in China’s macro-leverage ratio in 2021, as well as contraction in shadow banking of 25 trillion yuan during the period from 2017 to 2021, and 11.5 trillion yuan during the past two years alone. Approximately 12 trillion yuan in non-performing assets have been disposed of during the past five years, as well as more than 6 trillion yuan since the start of the COVID-19 pandemic. Other areas of risk prevention highlighted by Guo include hidden local government debt, the formation of bubbles in the real estate sector and real estate “financialisation,” and the suspension of P2P online lending operations.
  2. Vigorously supporting the recovery and steady growth of the national economy. Guo highlighted efforts to “satisfy the rational and effective financing needs of the real economy, and expedite the stable recovery and positive cycles of the national economy.” New renminbi loans approached 20 trillion yuan in 2021, while new bond investment by banking and insurance sector institutions was around 7.7 trillion yuan. The medium-and-long term lending balance grew by nearly 30% year-on-year (YoY) while tech R&D loans grew 28.9%, and green credit 21%.
  3. Further guiding expansion of financial inclusion. “The volume of micro-and-small financial services have increased in volume and fallen in price” said Guo. Over the past four years micro-and-small enterprise loans have grown by over 25% on average per annum, while the rate for loans has fallen by over 2 percentage points. In 2021 five of the big state-owned banks saw an increase of 41.4% in their financial inclusion micro-and-small enterprise loans. Guo also highlighted efforts by larger banks to use tech and data advantages to continue to raise their ability to service long-tail customers, as well as remote regions and rural village revival. “According to relevant reports from the World Bank and the International Monetary Fund, China’s financial inclusion services remain at leading levels internationally,” said Guo.
  4. Continuing to deepen reform and opening of the banking and insurance sectors. Guo said that China’s three year corporate governance action plan has “continually improved a modern finance and enterprise system with Chinese characteristics,” serving to “deeply integrate party leadership with corporate governance.”
  5. Firmly containing the disorderly expansion of capital in the financial sphere. Guo highlighted “strengthening of the regulation of non-financial enterprise investment in financial enterprises, and firming up the firewall between industry capital and financial capital.” This includes “normalisation of special rectifications of equity and affiliate transactions, steady and orderly clearance of shareholdings in high-risk institutions in breach of regulations, striking against malignant ‘hollowing out’ of financial institutions by illegal shareholders, and the successive publication of four sets of illegal shareholders.” Chinese financial authorities have also fully included online financial operations within within the purview of regulation; strengthened anti-trust measures and measures against unfair competition, and standardised cooperation between licensed financial institutions and online platforms.
  6. Firmly and unwaveringly advancing strong supervision and regulation. Guo highlighted efforts to strictly punish financial corruption and the prevention of financial risk, and strictly investigate the “background corruption issues” underlying various forms of malfeasance in the financial sector. CBIRC has “strengthened financial rule of law, improved the bond market legal systems and standardised the basic regulations for corporate credit grade bonds,” as well as accelerated the schedule for financial stability and derivatives legislation, and made it clear that derivatives regulation will come under “unified rules.” In 2021 CBIRC issued 3870 penalties to banking and finance sector institutions, as well as 6005 penalties to individuals, for total penalties of 2.7 billion yuan.