Banking & Finance

Musical chairs

China’s financial regulators get new leaders in sweeping reshuffle

Musical chairs

Bank job: Shang Fulin

In terms of red tape, China remains a difficult place to do business. There’s still so much of it to negotiate that the World Bank’s rankings puts it in 91st place in the ease of doing business list, between Serbia and Uruguay.

And since rules and regulations remain at the core of much of the local business environment, it should be of little surprise that a recent reshuffle at the financial regulators was big news.

The introduction of new top officials to oversee banking, insurance and the securities industry also offered a fresh opportunity for commentators to predict the future direction of policy.

The most significant move was made by Shang Fulin, who becomes the new head of the China Banking Regulatory Commission.

Described by as “stable, low-key” personality, Shang is also an experienced regulator – he is stepping down from the top job at the China Securities Regulatory Commission, which he has run since 2002.

Shang has a tough act to follow. He replaces Liu Mingkang, the man who helped rescue China’s state-owned banks from a mountain of non-performing loans over an eight year period – and who had, prior to that, headed Bank of China and stewarded its overseas listing.

But Shang has an impressive track record too, responsible for split share reform – a structural change that helped to reignite interest in the A-share market. He also set up the Nasdaq-inspired ChiNext market in Shenzhen, as well as a futures exchange.

The spot left vacant at the CSRC will be filled by Guo Shuqing, the media- savvy chairman of China Construction Bank.

The final move is at the top of the China Insurance Regulatory Commission with Xiang Junbo, chairman of Agricultural Bank of China, replacing Wu Dingfu.

The financial regulators have been appointed well ahead of next year’s anticipated handover of power from Hu Jintao and Wen Jiabao to the next generation of senior political leaders. By the time that the handover does happen, the regulators will already be settled in their new roles, allowing policy reform to continue less interrupted.

Analysts are now speculating on the pace of future change. There are targets to meet. Perhaps the most ambitious is to turn Shanghai into an international financial centre by 2020. But the city still lacks an international board that would allow foreign companies to raise capital domestically, and it also lags far behind its international peers in terms of the range and sophistication of financial products on offer.

The responsibility for pushing through change falls on the shoulders of Guo and the CSRC. Analysts are cautious, although they seem to think he is up to the job: “Guo has adopted a market-oriented approach in the past, so his appointment will at least not slow down liberalisation of China’s capital markets, even if it won’t accelerate it,” Zhang Howhow, from Z-Ben Advisors, told Reuters.

But Shanghai won’t emerge as a financial powerhouse if the Chinese banks are weak. Although non-performing loan ratios were marked at only 1.2% for 2010, the lending binge of recent years suggests that levels could increase. Ensuring that the banks manage a deterioration in their loan portfolios effectively will be the responsibility of the CBRC under Shang.

In this respect, it is worth pointing out that the new regulators are facing challenges similar to their predecessors. When Liu Mingkang assumed leadership of the CBRC nearly a decade ago when debt was also the main issue. And Shang’s main problem when he started out at the CSRC was a lacklustre A-share market, a challenge now also being faced by Guo Shuqing.

Despite the changes taking place across the Chinese financial markets, some problems seem to remain the same.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.