China promises more regulatory oversight following party conference

China is promising an era of greater regulatory supervision and macroprudential risk management following the National Financial Work Conference, a large event held every five years that concluded on Monday. The conference comes shortly before the 19th Party Congress, another event held every five years that is used by the ruling Communist Party as an opportunity to flex its political muscles. China’s president Xi Jinping made it clear that the Party would take more of a leadership role in the country’s financial sector. Mr Xi called it a "dereliction of duty" if the regulators fail to spot and dispose of risks in a timely manner, and stressed that coordination of financial regulation should be improved, and weak links in supervision strengthened. One of the measures introduced was the establishment of a Financial Stability and Development Committee, to act under the State Council as an overarching supervisor of the different regulatory bodies overseeing different parts of China’s complex financial sector, including the insurance industry. Of particular concern to Chinese authorities is the lack of visibility over capital flows and the ability to stop market manipulation or the secret diversion of funds to more risky products – a problem that has grown due to the increase in cross-sector financial services. The likelihood of a stricter regulatory regime emerging from the conference was increased by the anti-corruption crackdown that has been in place for the past few months, not least in the insurance sector where the China Insurance Regulatory Commission (CIRC) has sanctioned several insurance companies and their executives have fallen foul of the authorities. This includes the chairman of Forsea Life, who was banned from the insurance business for ten years due to violations of rules governing firms’ use of insurance funds, as well as the chairman of Anbang Insurance, Wu Xiaohui, who has been detained since mid-June. Anbang was one of the most aggressively acquisitive Chinese insurers of recent years but has fallen foul of China’s wish to curb the excessive spending that fuelled the growth of its insurance industry, and instead promote a vision of stability and risk aversion. The former head of the CIRC, Xiang Junbo, was also dismissed from his post back in April over allegations of corruption and he is expected to be replaced by a hardliner with strong links to the Communist Party. Despite the announcements made at the conference, few details regarding the new initiatives have been released and observers cited by Reuters have suggested the primary objective is to lay the groundwork for a smooth 19th Party Congress later in the year. “China’s plans to ameliorate systemic risk, while laudable, are also significantly driven by the desire for an unblemished 19th Party Congress,” said Brock Silvers, managing director of Kaiyuan Capital, a Shanghai-based investment advisory firm. “Regulators have yet to announce detailed steps, and probably won’t do so prior to the Congress,” he told Reuters. “In the interim I don’t expect major changes, such as the creation of a unified super-regulator.”

China promises more regulatory oversight following party conference

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