Analysts are unpacking China’s twice-a-decade National Financial Work Conference convened by President Xi Jinping over the weekend, during which leaders focused on financial security, stressing that financial sector stability was essential for national security.
While some details of what the policy guidance will mean for the next five years are not entirely clear, in the short term it looks as though Beijing will continue to push ahead with the deleveraging campaign which began late last year.
Xinhua quoted Xi as saying the government will continue to deleverage the economy by firmly taking a prudent monetary policy and prioritizing reducing leverage in state-owned enterprises.
The main concrete development to come out of the meeting was the establishment of a new cabinet-level committee to be run through the People’s Bank of China, which will coordinate regulation of stocks, banks and the insurance industry. Financial sector oversight is currently divided among four regulators, including the PBOC.
“Xi’s decision to ramp up the regulatory powers of the PBOC and to establish a commission to oversee financial stability and development reflects the increasing financial sector vulnerabilities in the Chinese financial system,” Rajiv Biswas, Asia-Pacific Chief Economist at IHS Markit was quoted by Bloomberg as saying. “The Chinese government wants to prevent a financial crisis in China that could create shock waves in the domestic economy and create a rising risk of social unrest.”
“Given that China’s markets are seeing such obviously reckless activity in places, this is welcome,” Michael Every, senior Asia-Pacific strategist at Rabobank was quoted as saying. “Tighter, more-centralized regulatory powers — if that’s what this will really mean — under the PBOC are welcome,” he said.
Some also interpreted the emphasis on prudence to mean further opening up of Chinese markets would be sidelined in favor of focusing on domestic stability.
“Opening up is certainly taking a back seat,” said Andrew Polk, co-founder of research firm Trivium China in Beijing. “That’s what most of the academic literature on financial reform identifies as the proper sequencing.”