REPEAT:MNI:China's Top Fin Regulator Starts Work w/ Big Powers

Repeats Story Initially Transmitted at 08:42 GMT Nov 10/03:42 EST Nov 10

     BEIJING (MNI) - The long-awaited top Chinese financial supervisor got to

work this week, seeking to bring order to the previous disjointed and

uncoordinated oversight of the country's banking, insurance and securities

sectors.

     The Financial Stability and Development Committee (FSDC), a special agency

reporting directly to the State Council, the country's cabinet, held its first

meeting on Wednesday and laid out a series of tasks to enhance regulatory

coordination and prevent financial risks, according to the official Xinhua News

Agency. 

     The committee is headed by Vice Premier Ma Kai, Xinhua reported, indicating

its political ranking will be higher than that of the People's Bank of China and

the three sector-specific financial regulators -- the China Banking Regulatory

Commission (CBRC), the China Securities Regulatory Commission (CSRC) and the

China Insurance Regulatory Commission (CIRC).

     The supervisor will focus on monetary policy and financial regulation in

coordination with the government's financial, fiscal and industrial policies,

formulate policies to prevent systemic financial risks and maintain financial

stability, and guide local government financial reform and development, Xinhua

noted.

     The committee's announced responsibilities indicate it will not just be a

central government financial watchdog, but rather a powerful organ supervising

financial regulators, as well as fiscal and development planners.

     "Who supervises regulators?" is a question that has been posed frequently

since the U.S. subprime mortgage meltdown led to the Global Financial Crisis in

2008. Although Chinese financial markets have not faced such a crisis, smaller

problems have emerged from time to time -- for example, the stock market rout in

2015 that wiped out trillions of the yuan in value, or the bond market's big

correction at the end of 2016, when the 10-year government bond yield surged

over 50 basis points within a month. Of course, market "irrationality" could be

blamed, but insufficient and uncoordinated regulation also played a role.

     To date, China's financial regulatory structure has been fragile and prone

to abuse. With the securities, banking and insurance industries all supervised

by different regulators with unclear regulatory reach, most of China's recent

financial market innovations has been the result of regulatory arbitrage to find

the least intrusive supervisor. All of the biggest innovations -- including

wealth management products, negotiable certificates of deposit and entrusted

funds -- have been the main tools to increase financial leverage.

     The FSDC "is the new granny of the 'one bank, three committees,'" a wealth

manager at a commercial bank told MNI, referring to the central bank and the

three main regulatory bodies. "Banks have become too closely linked with

securities companies and entrusted funds in recent years. The standards of

approving and regulating new financial products are different [among the

regulators]. Sometimes the CBRC says yes, but the CSRC says no," he said. 

     "The competition between regulators was very obvious, since their powers

overlapped in some respects, but now it will be better under a big boss," he

admitted. 

     The PBOC will play a role as the "office" of the FSDC and is expected to

carry out its decisions. 

     "Who becomes the next governor of the PBOC after Zhou Xiaochuan's

retirement may be not so important, since the FSDC will take over the duties the

PBOC should have fulfilled," the bank wealth manager said.

     What is more, reading between the lines of Xinhua's announcement, the

duties of the FSDC are far broader than just regulatory coordination.

     Ming Ming, chief analyst with CITIC Securities, said the development and

stability of the financial sector is the core responsibility of the committee.

"The high political ranking of the FSDC means the top decision-makers have

lifted the importance of financial-risk prevention to a higher level," he said

in a note.

     Problems, including the mismatched duration of wealth management products

and funding, messy internet financing and opaque financial services will be the

priority of the new supervisor, Ming said.

     The Financial News, a journal run by the PBOC, said Friday that the first

major task of the FSDC is expected to be strengthening regulation of financial

holding companies, which offer services in more than one regulatory area. Many

of these companies arbitrage regulation to reduce supervision and so create

bigger financial risks in the process.

     Relevant regulations are expected to be launched soon by the FSDC. 

     "If the regulations are too strong, financial markets will see a

correction, but at least market participants will not have to feel anxious due

to policy uncertainty," the bank wealth manager said. "If the moves are not as

strict as we expect, the market will have a chance to recover." 

     "We just need wait and see," he said. 

--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com