With China’s market regulators bruised from missteps over the past year, the People’s Bank of China is making a bid to extend its powers and oversight into areas beyond its traditional focus.

People's Bank of China
People’s Bank of China

Just in May, China’s central bank added controls for banks and companies in a move to cap cross-border capital flows. This comes on the heels of creating the Macro Prudential Assessment risk-monitoring system in December. Since then, the bank has grabbed power from the banking regulator by taking authority over bonds, equities and off-balance sheet assets held by commercial banks.

The PBOC is also re-establishing a provincial-based bureau structure that was abolished in the 1990s so it can better gauge conditions on the ground, reported Bloomberg.  The goal: to consolidate risk monitoring so problems in banks or markets are spotted before they blow up and do real economic damage.

Last summer’s stock market rout and the ensuing Keystone-Cop measures left the China Securities Regulatory Commission, the stock market watchdog, severely weakened.

The banking watchdog has also been criticized for not doing enough to curb the rampant borrowing for leveraged share trading that exacerbated last year’s swings.

This has given the central bank an opening to take on a bigger regulatory role while it also tries to keep the economy humming.

The PBOC has an “upper hand” in any shake up because of its broad mandate to maintain financial stability, Zhu Ning, deputy dean at Shanghai Jiao Tong University’s Advanced Institute of Finance in Beijing told Bloomberg.

Zhu said there are two likely outcomes from the regulatory revamp: the PBOC emerges as the key coordinating regulator, or a new super regulator is created to work alongside the PBOC. The PBOC-led option has the advantage of being clearer and more effective, according to Zhu, by avoiding the potential for conflicting policies or loopholes that could be exploited.

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