“the Central Committee of the Communist Party of China’s Proposal on Formulating the 14th Five-Year Plan for National Economic and Social Development and the Long-term Goals in 2035” puts forward, “Improve the modern financial supervision system, improve the transparency and legalization level of financial supervision, improve the deposit insurance system, improve the financial risk prevention, early warning, disposal and accountability system, and have zero tolerance for violations of laws and regulations.”
Preventing risks is the eternal theme of financial industry. The article signed by Guo Shuqing, secretary of the Party Committee of the People’s Bank of China and chairman of China Banking and Insurance Regulatory Commission, published on November 19th in the “Central Bank Research” column emphasizes that maintaining financial security is related to the overall situation of China’s economic and social development. Guo Shuqing said that through continuous efforts, financial risks tend to converge and the resilience of the financial system has been significantly enhanced. Not only did it successfully avoid the potential risks from evolving into financial crisis, but it also created valuable policy space and room for manoeuvre to deal with various complicated situations.
Specifically, the blind expansion of financial assets has been fundamentally reversed, the risks of shadow banking have continued to converge, the identification and disposal of non-performing assets have made great strides, illegal and corrupt behaviors have been severely punished, Internet financial risks have been greatly reduced, the debt risks of large and medium-sized enterprises have been resolved in an orderly manner, the trend of real estate financialization and foaming has been curbed, the hidden debt risks of local governments have been initially controlled, the long-term mechanism of treating both the symptoms and root causes has been gradually improved, and the quality and efficiency of the service entity economy have been significantly improved.
As for the causes of financial risks, the State Council Counselor Wang Zhaoxing said that the sources of risks mainly come from two aspects-internal and external. For internal risks, we should strengthen corporate governance and improve the prevention of credit risks and liquidity risks. For external risks, it is necessary to strengthen counter-cyclical adjustment and macro-prudential management from a macro perspective, so as to prevent the impact caused by the formation of economic bubbles, real estate bubbles and financial bubbles.
In the face of the complicated and severe economic situation, Guo Shuqing emphasized that to strengthen the awareness of opportunities and risks, it is necessary to “stabilize the overall situation, make overall plans and coordinate”, further improve the quality and efficiency of financial services, and push economic development into the normal track as soon as possible; It is also necessary to “classify policies and accurately dismantle bombs”, deal with outstanding risks in key areas in an orderly manner, and achieve stable growth and long-term balance of risk prevention.
Improve the corporate governance ability of financial institutions
In recent years, the regulatory authorities have kept a high pressure on financial crimes, and illegal financial groups and illegal financial activities have been severely punished. The asset liquidation, recovery and risk isolation of illegal financial groups such as Anbang, Tomorrow and Huaxin have been solidly promoted. Hengfeng bank, Baoshang Bank, Jinzhou Bank and other institutions have achieved phased results in risk management.
The above-mentioned risk events of small and medium-sized banks exposed some problems, such as insider control, shareholder vacancy and offside, which all point to the failure of corporate governance and internal control. Wang Zhaoxing believes that from the inside, the failure of corporate governance and risk internal control leads to blind business expansion and illegal operation.
In recent years, the regulatory authorities have attached great importance to strengthening the corporate governance ability of financial institutions, and the recently released People’s Republic of China (PRC) Commercial Bank Law (Revised Draft) (hereinafter referred to as Revised Draft) emphasizes this issue from the top-level design of financial rule of law. A new chapter on “Corporate Governance of Commercial Banks” is set up in the Revised Draft, including the addition of shareholders’ obligations and shareholders’ prohibited behaviors; Highlight the core role of the board of directors, standardize the special committees of the board of directors, independent directors and other matters; Enhance the independence and supervisory role of the Board of Supervisors, and establish a mechanism for the Board of Supervisors to report to regulatory bodies; Improve internal control, standardize incentive and restraint mechanism, information disclosure and related party transaction management.
In addition, Guo Shuqing emphasized that the deposit insurance system and institutional system should be improved to give full play to the role of early intervention, early warning and early disposal. In this respect, the Revised Draft enriches the chapter on “Risk Disposal and Market Exit”, and from the beginning of risk monitoring, it improves the whole process control of financial institutions’ early correction, reorganization, takeover and bankruptcy exit, thus laying a foundation for the construction of market-oriented exit channels for financial institutions.
At the same time, the regulatory shortcomings of financial holding companies are also accelerating. On September 13th, the State Council issued the Decision on Implementing the Access Management of Financial Holding Companies, and the People’s Bank of China issued the Trial Measures for the Supervision and Management of Financial Holding Companies. The industry believes that strengthening the overall supervision of financial holding companies is conducive to standardizing the operation and management of financial holding companies, preventing cross-infection of risks, standardizing the order of financial markets and better serving the development of the real economy.
Prevent high-risk shadow banking from rebounding.
The risk chaos of shadow banking was once very serious, and it is one of the key areas of centralized rectification in recent years. In 2017, the regulatory authorities rectified the non-standard interbank, wealth management and off-balance sheet business. In 2018, the new asset management regulations were implemented. Up to now, the scale of shadow banking has dropped by about 20 trillion yuan compared with the historical peak, fundamentally maintaining the stability of the financial system.
Ruan Jianhong, director of the Survey and Statistics Department of the People’s Bank of China, said earlier that by the end of August this year, the assets of asset management products of financial institutions totaled 90.1 trillion yuan. With the regulatory authorities promoting the rectification and transformation of asset management products in an orderly manner, the risk status of asset management products has been improved. Mainly, the proportion of net worth products has increased, the de-channel process has accelerated, the proportion of cross-holdings in the same industry has dropped significantly, and the debt leverage ratio of asset management products has dropped. Ruan Jianhong suggested that financial institutions should strengthen the R&D and risk management capabilities of asset management products, promote the return of asset management products from the “shadow of banks” to the source of asset management and better serve the real economy.
“In the previous period, some banks purchased their own discounted acceptance bills through the asset management channel of securities, thus realizing the false statement of bills, because the discounted bills accounted for the credit line and occupied capital.” According to the person in charge of the relevant departments of the People’s Bank of China, in this case, there is a lack of effective risk isolation between the on-balance sheet business and off-balance sheet financing, which leads to the distortion of capital measurement. Therefore, it is necessary to strictly isolate risks, truly reduce capital measurement, strengthen corporate isolation, and strictly isolate businesses. It is not allowed to protect the income by adjusting the net value in violation of regulations, rolling issuance, self-funding, and entrusted compensation, and it is not allowed to provide guarantees, repurchases, and other commitments to bear risks for non-standardized debt assets or equity assets invested in asset management products.
Guo Shuqing stressed that it is necessary to prevent the resurgence of high-risk shadow banking. Highlight the principle of simplicity and transparency, standardize cross-financial products, so that the boundary between public offering products and private offering products is clear, the risks of on-balance sheet business and off-balance sheet business are isolated, entrusted business and self-operated business are operated separately, and savings products and investment products are distinct.
Service entity is the fundamental way to resolve risks.
When talking about external risks, Wang Zhaoxing mentioned the impact of the epidemic. “We have personally experienced that the COVID-19 epidemic, which swept the world, has had a huge impact on the world’s economy, trade and even finance, and also triggered the accumulation of huge financial risks.”
At present, the epidemic is still spreading all over the world, the world economy is in recession, the domestic epidemic prevention and control has made great strategic achievements, and the economy is recovering steadily, but there are still great instability and uncertainty.
Guo Shuqing pointed out that after the outbreak of the epidemic, there are new major challenges in the financial field, the bad debts of financial institutions may increase substantially, and enterprises, residents and governments may all increase their debts. The unprecedented unlimited quantitative easing policy of the United States erodes the foundation of global financial stability. Guo Shuqing said that he would make every effort to push the national economy back to normal circulation, and that “finance and the real economy coexist and prosper together. Serving the real economy is the bounden duty and purpose of finance and the fundamental measure to prevent financial risks. “
Ouyang Weimin, president of China Development Bank, also believes that to deal with financial risks, the first thing to do is to do a good job in serving the real economy, which is the fundamental way to resolve financial risks.
In view of the difficulty and expensive financing of private enterprises, Dong Zhiyong, assistant president of Peking University and dean of the School of Economics, believes that this is related to the long-standing imbalance between supply and demand in the financial industry, and it is necessary to strengthen the credit service for private enterprises. At the same time, considering that the current financial services are still dominated by indirect financing, it is necessary to optimize the financial market system, vigorously promote the construction of equity trading market, including GEM and registration system, and support the virtuous circle of China’s economy with multi-level financial markets.
(Source: China Financial News Network)