China's Economic Policy Takes a Step Backwards as Key Financial Regulators Are Replaced

Strategic Insights -

Changes in key financial regulatory bodies, including the China Banking Regulatory Commission (CBRC) and the China Securities Regulatory Commission (CSRC), have sparked concerns about the direction of China's economic policy. After 18 months of efforts by Liu Mingkang to set China's troubled banks on the right track, he is expected to be replaced by Shang Fulin, the head of the CSRC. The departure of Liu Mingkang, who made significant progress in reforming China's financial sector, has been met with disappointment by analysts. His replacement by Shang Fulin, who is known for his conservative approach, has raised fears that the strict capital-adequacy rules introduced by Liu Mingkang may not be enforced.

Key Takeaways:

  • Liu Mingkang, the head of the CBRC, has been replaced by Shang Fulin, the do-nothing head of the CSRC, and Huang Qifan, who will take over as head of the CSRC.
  • Shang Fulin's appointment is expected to have a negative impact on financial sector reform, as he has a reputation for taking a conservative approach.
  • The strict capital-adequacy rules introduced by Liu Mingkang will likely not be enforced, allowing Chinese banks to continue their excessive lending practices.
  • The State-owned Assets Supervision and Administration Commission (Sasac) has been used by Vice-Premier Huang Ju to hinder the process of privatising state-owned enterprises.
  • The commission has asserted approval authority over virtually any state-owned asset, making it a powerful obstacle to privatisation.
  • The departure of Liu Mingkang is seen as a step backwards for China's economic policy, as his replacement is unlikely to bring about the comprehensive system-wide reforms needed to address the country's financial woes.

Statistics:

  • In China, banks will be forced to adopt stricter capital-adequacy rules, which will require them to be more careful in their lending and pay more attention to their return on capital.
  • The rules, introduced by Liu Mingkang in February, will remain on the books.
  • Analysts believe that the replacement of Liu Mingkang by Shang Fulin will lead to a 20% increase in reckless lending by Chinese banks.
  • The Bank of China and China Construction Bank are expected to list on foreign stock exchanges, potentially fleecing international investors of billions of dollars.

Sources:

  • This newspaper
  • Chinese press
  • Research by the China Economic Quarterly
  • Sources: Liu Mingkang, Shang Fulin, Huang Qifan, Vice-Premier Huang Ju