x Abu Dhabi, UAEFriday 24 November 2017

Xi Jinping calls for modernising of China's financial framework

Mr Xi is ramping up efforts to ensure stability ahead of a twice-a-decade leadership transition this fall at the 19th Communist Party Congress

The Chinese president Xi Jinping said the central bank will play a stronger role in defending against risks, calling for more work on safeguarding the financial system and modernising its regulatory framework.

Financial security is part of national security, and Communist Party leaders must step up their work toward that goal, Mr Xi said during the twice-a-decade National Financial Work Conference held on July 14 and 15, state media reported on Saturday.

Mr Xi also said China will set up a commission under the State Council to oversee financial stability and development and urged the financial sector to better serve the real economy.

In a speech to the gathering, Mr Xi said prudent monetary policy, a goal announced in December, should be firmly implemented. The People's Bank of China should also take a stronger macro-prudential policy role, Mr Xi added. He also called for greater yuan exchange-rate reform, an improved foreign-exchange market system, and steady progress in yuan internationalisation, according to the reports from state media.

Mr Xi is ramping up efforts to ensure stability ahead of a twice-a-decade leadership transition this fall at the 19th Communist Party Congress. He has elevated curbing risk in the US$40 trillion financial industry to a new level with "strategic importance" amid increasingly intertwined business between China’s banks, brokerages, asset managers and insurers.

Premier Li Keqiang also spoke at the meeting, calling for the maintenance of moderate credit growth and keeping liquidity "basically stable," according to state television. He also called for "professional, consolidated, penetrating" regulation of all financial businesses to reduce risks.

"China’s top leadership has shown greater concern over the need to strengthen financial stability," Kim Eng Tan, a credit analyst at S&P Global Ratings in Singapore, wrote in a recent report. "We are likely to see better coordination among various government agencies, compared with some foot-dragging in the past."

Mr Xi also called for a strengthening of accountability for regulators, saying it’s a "dereliction of duty" if they 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.

The People’s Bank of China last year began measuring risk using what it calls a Macro Prudential Assessment system built on examining banks’ capital-adequacy ratios - a monitoring authority once on the China Banking Regulatory Commission’s turf. Still, information on financial firms including brokers and insurers is supervised by other agencies such as the China Securities Regulatory Commission and China Insurance Regulatory Commission.

The financial work conference has held a special place in China’s economic and political calendar since it was introduced to encourage more sustainable economic growth after the Asian financial crisis. The first, in 1997, saw the establishment of an insurance regulator and a plan to bail out the largest banks.

The second gathering led to the creation of a banking regulator and a drive to list major state-owned lenders on overseas stock exchanges. In 2007, the conference oversaw the creation of the sovereign wealth fund, China Investment, which now has $813.5 billion of assets. The meeting in 2012 focused on the fallout from the global financial crisis.

The economy is holding up. Economists estimate growth edged down in the second quarter with a 6.8 per cent expansion, decelerating from 6.9 per cent in the first three months of this year, according to a Bloomberg survey before the data due for release tomorrow.

While past meetings were early in the calendar year, this one coming later may indicate divisions among the leadership, Helen Qiao, the chief Greater China economist at Bank of America in Hong Kong, said.

"This is something different," Mr Qiao said. "Usually it takes place at the beginning of each year so the very fact that it has been postponed until now really indicates that there was no consensus probably until recently.

Bloomberg