China plans to impose new measures to tighten financial discipline,
prevent major risks and improve its financial structure in support of
steady economic development, according to the central bank governor and
financial regulators. Their articles, included in a recently published book, highlight key
tasks for the next five years, such as the government's increased
scrutiny of the financial sector to tackle credit defaults, curbing
misconduct and encouraging financing through the equity market, experts
said. The country is building a broad regulatory framework that covers all
financing activities, from traditional bank lending to off-budget debt
financing, including the Internet giants that provide financial
services. Fintech businesses should follow some new and special
regulatory rules, Guo Shuqing, Party secretary of the People's Bank of
China, the central bank, wrote in an article. Guo, who is also chairman of the China Banking and Insurance
Regulatory Commission, stressed the importance of an adequate capital
base and an appropriate leverage ratio when undertaking financial
innovation. He warned that real estate is the major threat for the country's
financial sector since real estate-related loans account for 39 percent
of all banking loans. Policy watchers noticed that the authorities are concerned about the
country's financial health, following some cases of corporate bond
defaults amid COVID-19 shocks. The total debt-to-GDP ratio also
increased after policymakers introduced monetary and fiscal stimulus in
the first two quarters to stabilize economic growth. Li Yang, chairman of the Chinese Academy of Social Sciences' National
Institution for Finance and Development, said that tackling bond
default risks will rely on rebalancing the nation's financial structure,
and the equity market should play a bigger role in financing. In the
next stage, new regulations will focus on the biggest high-tech
companies, whose services may relate to monopoly issues. In November, a meeting of the nation's top financial regulatory body
emphasized "zero tolerance" of misconduct in financing deals or attempts
by enterprises to evade debts. Yi Gang, governor of the central bank, mentioned in a separate
article that it will tighten scrutiny of large financial institutions.
Financial infrastructure, such as the electronic payment system and the
cross-border settlement system, will be included in supervision. Yi highlighted in the article the need to prevent "monetization of
the fiscal deficit", a situation in which the central bank pays for the
government's debt. This issue sparked intense debate among policy advisers earlier this
year, and many opposed it on the grounds that it may fuel inflation. The PBOC must have an independent financing and budgeting system, and
there should be a "firewall" between balance sheets of the central bank
and the government. Also, corporate debt defaults should not be
write-downs of the PBOC's assets, according to the governor. On Monday, the central bank injected 200 billion yuan ($30.44
billion) of liquidity through its medium-term lending facility, a policy
tool to increase lending in the interbank system, aiming to rein in the
soaring bond yields due to some credit defaults of State-owned
enterprises. The central bank may be under pressure to offer liquidity support via
open-market operations in December, especially given the rising market
interest rates amid the recent and potential market vulnerability,
analysts said. In Yi's article, he also mentioned steady progress in the research
and development work of the central bank digital currency, which is
called "digital currency and electronic payment" in China, and the need
to launch controllable pilot programs in an orderly manner and improve
the legal framework.
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