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China's central bank to play bigger role managing financial risk

A man pushes a bicycle past the People's Bank of China (PBOC) headquarters in Beijing. Photo: Bloomberg

China's central bank will take on a stronger role managing systemic risk in the country's financial markets, state broadcaster China Central Television said on Saturday, citing President Xi Jinping.

Speaking at the National Financial Work Conference where top Chinese finance officials has addressed ways to manage the country's financial system and help support economic growth, Xi said that China would set up a financial stability committee under the State Council, boost the People's Bank of China's (PBOC) role managing financial risks and create more cohesive regulation.

"We will strengthen the PBOC's role in macro-prudential management and in averting systemic risk," Xi said, adding the country would increase the accountability of regulators and the supervision over regulatory bodies.

He also called for greater yuan exchange-rate reform, an improved foreign-exchange market system, and steady progress in yuan internationalization, according to reports from state media.

The announcements reflect increasing financial system vulnerability and the government's growing desire to prevent a destabilizing shock, according to Rajiv Biswas, chief Asia-Pacific economist at IHS Markit in Singapore. "Key priorities for the PBOC and the new commission will be to stabilize the non-performing loans in the Chinese banking system, manage shadow banking risks and manage risks related to the escalating level of corporate debt," he said.

Ahead of the closed-door event, economists had widely expected the meeting to focus on how the central bank could better coordinate with the country's three main financial regulators to manage risk in the financial system.

Chinese state financial paper, China Security Times, suggested that the current system of having one central bank and three regulatory agencies for banking, securities and insurance has entrenched interests which could present challenges.

"It is a hard nut to crack to change this model," the Times said. "The biggest obstacle is attempting to re-assign responsibilities, power, and personnel."

China's financial markets are monitored and regulated by the PBOC, China Banking Regulatory Commission, China Securities Regulatory Commission, and China Insurance Regulatory Commission. At times, the regulatory bodies do not act in tandem.

The PBOC last year began measuring risk using what it calls a Macro Prudential Assessment system built on examining banks' capital-adequacy ratios -- a monitoring authority once on the CBRC's turf. Still, information on financial firms including brokers and insurers is supervised by others such as the CSRC and CIRC.

Investors have long supported the idea of a unified body to oversee the regulators that oversee the different parts of China's financial system.

The creation of a super regulator has been widely discussed within financial circles for years and gained traction after the 2015 stock market turmoil. At that time, Xi ordered a plan to streamline financial oversight.

"In grey areas in the financial markets, none of the (three regulatory commissions) were taking responsibility to fully monitor the situation," Xu Hongcai, deputy chief economist at the China Center for International Economic Exchanges, said.

"So certain products were left to grow wildly and this has created a lot of risk and fostered bribery and corruption."

Ahead of a leadership reshuffle in the autumn, Beijing has zeroed in on the stability of the economy and financial system, cracking down on risky behavior by insurers and lenders, as well as targeting high levels of corporate debt.

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