Consolidated governance structure, strict law enforcement needed: experts
Chinese market regulators are expected to announce what experts descried as landmark reforms this year to fend off systematic risks in the country's financial system, as regulatory agencies have been ramping up efforts to lay the groundwork for the reforms.
The reforms will likely focus on improving coordination among different market regulatory agencies and enhancing enforcement of financial laws to protect investors' interests, imperative measures that have been highlighted in the turmoil seen in the stock market and the foreign exchange market in the past year and a half, experts said on Thursday.
Market expectations for reforms have been building, and further accelerated this week as rumors of potential guidelines floated around domestic financial websites.
The rumors started after text and pictures of a set of financial reform guidelines were posted online. The guidelines were mainly aimed at creating a uniform regulatory system by combining existing regulations for different financial markets and tackling issues such as high leverage, according to a report on news portal jiemian.com on Thursday.
The recommendations were reportedly issued jointly by the four main financial regulatory agencies, led by the People's Bank of China (PBOC), the central bank, as well as the China Securities Regulatory Committee, the China Banking Regulatory Committee (CBRC) and the China Insurance Regulatory Committee.
Though there have been no official comments on the reported reforms, the agencies have all stepped up talks concerning the implementation of regulatory reforms to fight systematic risks.
In a recent meeting, Pan Gongsheng, vice governor of the PBOC, said China will continue to deepen financial reforms and "firmly hold the bottom line of preventing systematic risks" in the financial markets, according to a statement posted February 17.
The other three agencies all echoed that statement in separate meetings and have been issuing new guidelines for their respective markets, the latest example being the CBRC's set of guidelines for regulating online lending issued on Thursday.
Landmark reforms
The repeated statements and measures coming out of the regulatory agencies signal that significant reforms are highly likely this year, according to experts.
"2017 could be a year with landmark financial reforms," Cheng Shi, head of ICBC International Research Ltd, told the Global Times on Thursday, adding that the reforms will likely focus on two areas: regulatory structure and protection of investors.
The first core theme would be to change the current regulatory structure to a more consolidated structure under the leadership of the PBOC where policies and regulatory actions would be closely coordinated, Cheng said.
He noted that turmoil in the stock market in the summer of 2015 and in the foreign exchange market in early 2016 revealed loopholes that exist mainly because the agencies are not closely coordinated.
"A single set of policies by a single agency does not have a complete impact on the market, that just doesn't work in China," even though the individual policy or the agency is very effective, Cheng said.
The reforms will also likely focus on better protecting investors' interest and cracking down on financial crimes by imposing harsher penalty on wrongdoings and improving enforcement of regulations, Cheng added.
To maintain stability in the financial market, it is key to protect the investors because they could be the victims as well as the "amplifier of market turbulence," Cheng said, noting that there have been some challenges in this regard due to the "very low cost" engaging in illegal activities and insufficient law enforcement power for regulators.
There would definitely be some "serious crackdown" on illegal activities in the market as part of the reform, Xu Guangfu, a senior analyst at Shanghai Yinji Asset Management Co, told the Global Times on Thursday.
"Though there have been a lot of crackdowns since the market crash in mid-2015, there will definitely be more," Xu said, adding that the ultimate goal of these reforms is to eliminate risks stemming from illegal activities.
He said that while the reforms could add some short-term turbulence to the market, in the long run they will be beneficial for the stability of the financial system.
