Steps will be taken to redirect capital toward producing goods and services and away from speculation. Li Xiang reports.
China has shifted the focus of its financial policy toward controlling risks, underscoring the desire of the nation's policymakers to contain systemic risks and ensure financing for real economic activities, such as providing goods and services.[Special Coverage]
In the Government Work Report, delivered to the National People's Congress, the country's top legislative body, Premier Li Keqiang warned about the accumulation of risks in areas such as nonperforming loans, bond defaults, shadow banking and internet finance.
While the overall risks are controllable, the premier vowed the government will be vigilant toward financial risks and will build a “strong firewall” against them.
This year, the top leadership has made the prevention of financial risks a key priority, as evidenced by the tone-setting Central Economic Work Conference in December.
The emphasis on curbing financial risks also reflects the government's concerns about the rising trend of “exit the real, enter the fake”, whereby companies abandon real economic activity and seek financial speculation instead.
The premier's pledge has been echoed by the nation's legislators and political advisers, who have urged tighter supervision and greater regulatory coordination in the financial markets at the ongoing two sessions, one of the country's biggest annual political events.
The latest evidence of tighter risk control are the coordinated efforts by the People's Bank of China, the central bank, and the regulators of the banking, securities and insurance industries to draft a comprehensive regulatory framework to tackle the risks inherent in the opaque investment products sold to retail and institutional investors.
Zhou Xiaochuan, governor of the People's Bank of China, said there is excessive speculation in the country's asset and wealth-management sector, and the central bank and other financial regulators have reached a consensus on tightening regulations on the industry. Detailed policies will be unveiled soon, he added.
While the draft regulations are still under discussion and subject to change, analysts said they will create better synergy among the various regulatory bodies, and will also help to rein in risks in the country's rapidly growing shadow-banking sector, in which some products are often unregulated or are provided by unauthorized lenders.
Government vows to control risks in financial markets
“Such a framework would be credit-positive for banks, because it would enhance the regulatory capacity to manage the growth of shadow-banking sectors, such as banks 'wealth-management products,” said Nicholas Zhu, senior analyst at Moody's Investors Service.
By the end of last year, the outstanding value of Chinese banks' off-balance-sheet wealth-management products exceeded 26 trillion yuan (.8 trillion), a rise of 30 percent from a year earlier, according to the PBOC.
Banks have worked with other financial institutions, such as trust companies, securities firms and fund companies, to sell risky, high-yield investment products to both retail and institutional investors. These investment products often have dubious structures and many exist in a regulatory void.
Guo Shuqing, the newly appointed chief of the China Banking Regulatory Commission, has warned about the opaque nature of many investment products.
“Some financial products... are invested in each other, with no one really knowing the underlying assets or the final destination of fund flows,” he told a recent media briefing.