CHINA’S NEW REGULATORY BOSSES FACE A TOUGH TASK
Change is not common within the regulatory agencies of China. Because of this the appointment of different management to the agencies that regulate the banking, insurance and securities markets is big news.
The highest position is that of the head of the CBRC or China Banking Regulatory Commission and has been filled by Shang Fulin, known to be a careful bureaucrat whose history includes his past appointment as the head of securities regulation in China.
He reformed financial regulation to allow state-owned companies that suffered from illiquidity of their shares to be traded not to mention that he introduced index futures and margin trading.
His former position as head of the CRBC has been given to Guo Shuging, whos past endeavors include being the chairman of China Construction Bank, an extremely large bank controlled by the state.
Responsibility for heading up the new regulator in charge of the insurance industry goes to Xiang Junbo, who was the head of the Agricultural Bank of China (ABC), another state-controlled bank. Junbo made his name with the dual listing of ABC shares in Hong Kong and Shanghai, the biggest Chinese public placement in history.
Even with such fine experience, the Chinese trinity of market regulation and activity has nothing short of a tough job ahead of them. Interference from the top of the party tends to stop the CRBC having complete control over bank regulation, an example of which is the requests from the party to allow the default of certain loans made to SMEs.
Chinas banks are currently in good financial health and are generally making good profits rising year on year however these profits are likely to be built on a large amount of bad debt. Non-performing loans given during the previous Chinese stimulus policy are a cause for concern as is the potential burst of the Chinese real estate bubble.
Overall the main concern is local-government debt, which is held by special types of investment vehicles and is currently being delayed in its repayment
Only time will tell how well Mr. Shang and his new colleagues will be able to do with the job ahead of them considering the challenges that they will be facing.