Market overall stable, but regulatory challenges on the rise: experts
China's intensified measures from the top leaders of the country to fend off risks in the financial market have highlighted the seriousness of problems existing in the markets and challenges faced by authorities to regulate a constantly evolving sector, experts said on Sunday.
While holding that financial risks are controllable, Chinese policymakers have been stepping up efforts to improve the country's financial regulatory system to avert what they consider risks that may threaten the overall stability of the domestic economy and run counter to reforms that ensure sustainable growth.
"Since the birth of the financial sector, risks have always existed," an unnamed commenter wrote in an article published Saturday on financialnews.com.cn, which is operated by a newspaper affiliated with the People's Bank of China (PBC), the central bank. "Though we can't completely get rid of them, we have to treat them very carefully."
In the Chinese financial industry, the article further pointed out, by focusing too much on the development of the financial sector, some local governments might have ignored risk control, and regulatory agencies might also lack sufficient risk management efforts for the same reason.
Such issues, however small, could lead to the accumulation of risks and even go out of control, if not dealt with properly, the article said. "[They] threaten financial security and economic stability," it added.
Serious risks
There are two major issues that pose serious risks for the Chinese financial industry, according to Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology. First, the financial sector has been distracted from its purpose of serving the real economy. Second, debt held by domestic companies and local governments is too high.
"More and more, industrial and financial capital is not playing its intended function, which is supposed to be serving the real economy," Dong told the Global Times on Sunday, noting that many individuals and institutions are speculating with capital and equities.
Also, some individuals and companies have been "endlessly" increasing their debt to "use investors' money for dealing with internal issues or personal gains," Dong added.
The leveraged-asset ratio among residents, non-financial companies and local governments rose 3.3 percentage points in the first quarter of 2017 to 237.5 percent from the end of 2016, according to a Friday report by the National Institution for Finance and Development under the China Academy of Social Sciences.
"There are very serious issues," he said. "Not only do they threaten the security of the financial sector but the overall stability of the whole economy."
Another issue, the article on chinafinancialnews.com.cn pointed out, is loopholes in the current regulatory system. It said that although the PBC and three other regulatory commissions in securities, insurance and banking have been focused on fending off risks, "regulatory vacuum still objectively exists."
Experts said that concerns over such risks and issues have been highlighted in intensified measures from top officials recently, including a plan to set up a Financial Stability and Development Committee under the State Council, China's cabinet. The plan was announced after the fifth National Financial Work Conference ended on July 15.
At the conference, top policymakers further determined that financial security is a vital part of national security and China will pursue reforms in the regulatory system to avert systematic risks and direct financial capital to serve the real economy.
"These are all tailored measures to tackle those specific issues," Dong said, adding more specific actions will follow in the near future to cut down financial leverage and lead more capital into real development.
However, these are not necessarily issues to be dealt with by tightening regulations, according to Li Daxiao, chief economist at Shenzhen-based Yingda Securities.
"I think these are comprehensive measures required at this very moment to ensure financial stability. They don't necessarily mean tighter controls of the market," he told the Global Times on Sunday.
Li said that measures from the National Financial Work Conference were intended to provide direction for financial regulatory work in the next five years, to ensure stability and development.
"I think financial risks are still controllable," he said.
