Another senior People’s Bank of China (PBOC) official has joined the top leadership at the country’s securities watchdog, signalling deepening central bank influence ahead of a shake-up of China’s widely criticised financial supervision regime.
Xuan Changneng, the chief of the central bank’s Financial Stability Bureau, has reportedly been appointed as an assistant chairman at the China Securities Regulatory Commission (CSRC). Xuan, who has a doctoral degree from the University of Texas at Austin and has worked for JP Morgan, would be the third senior official with experience at the PBOC to assume a top position at the CSRC within the last year, as Beijing reshuffles the watchdog after a stock market rout last summer.
The new line-up comes as China’s leaders mull a revamp of the financial regulatory system, now made up of the central bank and three regulators for stocks, banks and insurance firms.
This fragmented oversight arrangement is seen as outdated, since the boundaries between different types of financial activity are increasingly blurred on the ground. Some Chinese insurers, for instance, are putting funds from policyholders into stock-market bidding wars.
“The Chinese government is woefully lacking in financial experts with market experience and knowledge. This may explain why they’ve made so many mistakes in the past few years and why the financial system is still the Achilles heel of the economy,” said Scott Kennedy of US think tank the Centre for Strategic and International Studies.
The CSRC came under fire for its clumsy efforts to stabilise the onshore stock market. In one example, the circuit-breaker mechanism that it copied from the US lasted just four days in January after it exacerbated the stock sell-off and panic sentiment.
CSRC chief Xiao Gang stepped down in February and has not made a public appearance since. Prior to Xiao’s downfall, Yao Gang, the vice-chairman, and Zhang Yujun, an assistant chairman, were sacked and put under disciplinary investigation.
Liu Shiyu, formerly a deputy governor of the central bank, was named as the new CSRC head, and Li Chao, a veteran with the central bank, was appointed as the vice-chairman of the agency last September.
Xuan served on the CSRC for four years till 2004. He later headed the central bank’s research institute from 2008 and has led the Financial Stability Bureau since April 2009, reporting to Zhou Xiaochuan, the PBOC governor. Xuan will work under the direction of Liu once he is appointed assistant chairman.
“Personnel reshuffles in China, even in an agency like the PBOC, for which my knowledge base is better than for most government departments, are very opaque,” said Nicholas Lardy, a senior researcher with the Peterson Institute for International Economics.
“You can simply make the case that the CSRC was badly in need of new management, and much of it is coming from the PBOC,” Lardy said. “You may even argue that the appointment of Fang Xinghai is in the same vein: he long has close ties to Governor Zhou and is regarded as very reform-oriented.”
Fang, another vice-chairman at the CSRC, previously lead financial reform in Shanghai before heading an economic division in the central economic and financial leading group, the top economic advisory body reporting directly to President Xi Jinping.
Liu, Li, Xuan and Fang will take more than four of the top seven positions at the CSRC, giving PBOC-linked officials a dominant voice in decision-making at the agency.
While the CSRC is always subject to influence, or even dictates, from the central bank and top leadership, the preferences of its own leaders can make a difference. While Liu’s predecessors, including Guo Shuqing and Xiao Gang, talked much about innovation, Liu has repeatedly emphasised stability in his published comments.
China’s stock market has largely normalised in the last couple of months, offering Beijing the confidence to give the final go-ahead for a long-awaited Shenzhen-Hong Kong stock link.
It’s still not known how China will retool its financial regulatory architecture, although government economists and researchers have talked about proposals giving the PBOC a firmer hand in financial regulation, or even merging agencies into one super-regulator.
But no matter who is on board, they will face an uphill battle to keep a financial crisis at bay in an economy where growth is slowing down, debts are piling up and outflow pressure remains high.
“The main challenge for the next couple of years is to slow credit growth to deleverage the non-financial corporate sector, mostly by cutting off credit to persistently money-losing firms,” Lardy at Peterson said.