Rapid development, illegal operations behind changes: experts
After China's major financial regulators announced recently a tightening of their management grip on the domestic financial market through measures such as suppressing certain business by securities firms and repressing stock speculation, experts said Tuesday that the rapidly growing financial market in China is forcing them to change their traditional management model.
Li Chao, vice chairman of the China Securities Regulatory Commission (CSRC), said during a recent meeting that the CSRC would no longer tolerate illegal operations on capital markets, media reported on Tuesday.
"We used to be lenient about violations, but from now on we won't pull any punches," Li was quoted as saying in the report.
The China Banking Regulatory Commission (CBRC) and the China Insurance Regulatory Commission (CIRC) both noted on Tuesday that they would tighten supervision over domestic financial markets.
The financial regulators are tightening management in an effort to protect the investors' interests, Li Daxiao, chief economist at Shenzhen-based Yingda Securities, told the Global Times on Tuesday.
Tightening control
Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology, said China's financial market has developed rapidly since 2013, which has caught regulators unprepared.
"The most fundamental changes are the rise of the private market and buyouts. The former has given rise to complicated new assets management businesses and products, while the latter often involves leveraged trading," Dong told the Global Times on Tuesday.
This sudden development, replete with risks, has exceeded the expectations and even the management capacities of domestic regulators, inducing them to work out new measures to reverse the awkward situation, according to Dong.
Li, the CSRC vice chairman, noted that some financial institutions have designed "complicated, un-transparent" products to take advantage of policy loopholes, according to media reports.
Illegal operations "exist" in domestic financial markets, said Li, the chief economist at Yingda Securities.
The phenomenon has caused financial regulators to pump up efforts to standardize the markets. For example, the CSRC will gradually discourage securities traders from helping banks invest in areas they normally are not allowed to via the so-called channel business, the CSRC vice chairman said.
An employee at a Shanghai-based securities firm, who refused to be identified, said that such practices are one of the major businesses for securities companies.
"If it is canceled, it would impact the profitability of securities firms," the employee said. "Personally, I don't think such business will be completely banned."
She noted that some small commercial banks, which don't qualify to open accounts on stock exchanges but still need to invest their capital, have to fulfill their investment needs via such services provided by securities firms or funds.
The CSRC has also stipulated that major shareholders cannot procure shares through any means other than direct purchasing, the China Business News reported on Tuesday.
According to the securities firm employee, the CRSC has raised the frequency of sampling inspections on securities firms.
"They used to carry out such inspection once a year. Now two or even four times [a year] is completely possible," she said, noting that tightened supervision is a standard phenomenon and securities firms have responded actively to the situation.
The CBRC also said Tuesday it would establish a long-term mechanism for regulation management, while the CIRC noted on Tuesday that insurance companies should disclose information such as capital sources and ownership structure, so as to prevent hidden risks.
Chen Yulu, deputy governor of the People's Bank of China (PBOC), China's central bank, said the PBC would strengthen and standardize regional financial reforms, according to a PBC statement on Monday.
Difficulties remain
The regulators' tightening grip on financial management won't hurt the initiative of domestic financial institutions, as new regulation will give birth to new innovation, Dong noted.
He also said that the regulators would face difficulties, as financial services nowadays often cover vastly different areas, which pose challenges for the current divided management system.
Dong also noted that the regulators' measures will not influence the A-share markets, as stock markets "won't be changed by any certain measures."
The Shenzhen Stock Exchange noted on its Sina Weibo account on Tuesday that it would keep an eye on popular stock themes such as graphene and artificial intelligence, where speculative trading is most likely to occur.
