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HONG KONG/NEW YORK, March 8 (Reuters) – A new Chinese
financial watchdog will help bridge regulatory gaps but analysts
and investors say the agency will consolidate power at the top
and could introduce more state and party intervention.
In a major shake-up, China will set up the new regulatory
body, the National Financial Regulatory Administration (NFRA),
according to a proposal that the State Council, or cabinet,
presented to parliament on Tuesday.
The watchdog, which will oversee all aspects of China’s $57
trillion financial sector apart from the securities market,
should help reduce regulatory overlap especially at the level of
local government, analysts say.
The creation of the NFRA “carries an intent to have better
oversight of financial institutions and consumer protection, by
… bringing all financial activities under supervision,” said
Daniel Tu, founder of venture capital Active Creation Capital.
“However, one can interpret it as restructuring the
party-state to align with Xi’s objectives.”
President Xi Jinping, who clinched a precedent-breaking
third leadership term in October, last week renewed his call for
ambitious reforms of Communist Party and state institutions,
which analysts see as part of his effort to exert tighter
control.
The reform also comes after unprecedented regulatory
scrutiny of a string of private enterprises in the last couple
of years by multiple watchdogs after years of laissez-faire
regulatory approach.
Overall, the proposal is meant to “improve financial
regulation coordination to enhance financial stability”, a key
policy focus in the next few years, Goldman Sachs said in a
research note on Wednesday.
The new regulator will replace the banking and insurance
sector watchdog and bring supervision of the industry into a
body directly under the State Council, or cabinet.
There are also plans, sources have said, for the revival of
another high-level financial watchdog which is expected to be
directly under central party leadership.
It is not clear how that watchdog, being revived after two
decades, will align with the NFRA.
That party-affiliated watchdog is expected to be revealed as
part of the party’s institutional reform plan, which is due out
shortly after the conclusion of the parliamentary session on
Monday.
The reform plan and appointments of new leaders to key
government institutions, including the NFRA, should offer more
clues as to regulatory policies, Goldman Sachs said in its
research note.
‘ENHANCING CENTRALISATION’
In its reform proposals presented in parliament, the State
Council said the changes were meant to “deepen reforming local
financial regulatory systems” by “enhancing centralised
management of financial affairs”.
Under the changes, the central bank will focus on conducting
monetary policy and macro-prudential supervision, while the NFRA
will focus on micro-level activities, analysts at CITIC
Securities said in a research note.
Kevin Philip, partner at Bel Air Investment Advisors in Los
Angeles, managing $9.5 billion in assets, said the overhaul was
a step towards “centralisation” of regulations, and considered
it reasonable from a debt control perspective.
Some investors, however, are concerned that the regulatory
power reshuffle means tighter government control, which may
bring more interference or crackdowns on financial activity,
particularly in the private sector.
“My sense is that this could still be an issue of concern
for investors, especially foreign investors,” said Tara
Hariharan, head of global macro research at NWI Management, a
New York-based hedge fund focused on emerging markets.
Comprehensive financial oversight could well benefit policy
coordination and aid the world’s second-largest economy in
supporting growth and credit creation while keeping asset
bubbles at bay, she said.
“However, investors may fear such regulatory consolidation
as risking further crackdowns on ‘disorderly expansion of
capital’ of the sort that the property sector and the tech
platforms have already faced,” she added.
($1 = 6.9730 Chinese yuan renminbi)
(Reporting by Xie Yu, Julie Zhu, Selena Li in Hong Kong, Ziyi
Tang in Beijing, Davide Barbuscia and Carolina Mandl in New
York; Editing by Sumeet Chatterjee, Robert Birsel)
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