Financial Services Focus Group Quarterly Update – Q1 2018

Published on 2018-04-11

The Q1 update focuses on the "Lianghui" (Two Sessions) and its significance to the financial services sector.

A significant Lianghui session

Q1 2018 saw the Lianghui session, the annual two-week long meetings of the National People’s Congress (“NPC”) and the Chinese People’s Political Consultative Conference (“CPPCC”), take place.  This year’s Lianghui saw the implementation of significant changes to China’s constitution and governance structures, arguably the most significant since the reform era began 40 years ago. 

While attention was focused on the removal of presidential term limits from the constitution, leaving the door open for Xi Jinping to lead the country indefinitely, it was also the single biggest reorganisation of the government structure, as China continues to lay the foundations for further economic reform.

Streamlining the regulatory framework

Changes to the banking and financial sector were front and center as regulators try to stay ahead of fast moving industry developments. According to advice published by Tsinghua University and the London School of Economics and Political Science, China could adopt a UK-style financial regulatory system “with Chinese characteristics” to fix its loopholes by streamlining its fragmented financial oversight system that will see two regulators merged and the central bank given more clout as Beijing tries to rein in the industry.

The China Banking Regulatory Commission (“CBRC”) and the China Insurance Regulatory Commission (“CIRC””) have increasingly overlapped and will now be merged into the China Banking and Insurance Regulatory Commission (中国银行保险监督管理委员会) (“CBIRC”).  This new consolidated entity will be headed by the widely-respected Guo Shuqing. According to Reuters, Guo is “not only highly regarded as one of China’s most experienced financial services professionals, but he also stands out from Chinese bureaucrats as a reform-minded policymaker who is willing to take aggressive steps”. The China Securities Regulatory Commission (“CSRC”) will remain separate, retaining most of its previous brief.

A new head for the People’s Bank of China

At the same time, the People’s Bank of China will see its role change significantly.  China’s central bank is now responsible not only for monetary policy and overall regulation of the sector, but also policymaking, effectively relegating the CBIRC and CSRC to an implementation role.  The PBOC’s new governor Yi Gang’s extensive experience in both monetary and foreign exchange policy makes him the ideal candidate to succeed the universally respected Zhou Xiaochuan, who is set to retire.

Implications for business

These changes are good news for the industry.  We are likely to see more coordinated policymaking and regulation, as China seeks to rein in irresponsible lending, increase transparency and corporate governance, and bring its banking and insurance sectors further into line with their counterparts in developed countries.

Not only that, but this is all happening just as China opens its financial markets to greater foreign participation.  Following the surprise news late last year that China was lifting restrictions on foreign ownership of financial firms, this week Liu He set a one-year time frame for greater foreign participation in the sector, and the government announced foreign payments firms would be allowed to join China’s booming market.  Finance is arguably the bright spot for foreign market access.