Making sense of China’s financial system isn’t helped by the complicated regulatory network that governs it.
If, for example, an international agency wanted to issue renminbi-denominated “panda bonds,” it could have reason to go to any one of the National Development and Reform Commission (NDRC), the China Securities Regulatory Commission (CSRC), the China Banking Regulatory Commission (CBRC) or the Ministry of Finance (MOF). Each agency can claim to have some kind of say over the products and it is unclear whose say is the final one.
“If every market participant could deal with a single regulatory framework that would make life much easier,” said Ivan Chung, a Beijing-based senior analyst at credit ratings agency Moody’s.
Indeed, many of the bond market’s teething problems can be traced back to a lack of coordination between the bodies tasked with managing the financial system – or to battles between these regulators as they try to extend their spheres of influence.
“There have certainly been big fights over jurisdiction,” said Stephen Green, senior China Economist at Standard Chartered Bank.
This certainly appears to have been the case regarding control of corporate bonds. Rumors that the NDRC was to be stripped of its powers in this field first emerged nearly two years ago, but it wasn’t until after the government’s financial working conference in February that a decision was announced. The tug-of-war that took place between in the interim between the CSRC and NDRC eventually saw the latter retain responsibility for corporate bonds issued by non-listed companies.
“We talked to the NDRC and asked them how it felt to lose some of their power, and they were far too busy and weren’t sorry that the CSRC had taken over,” recalled one bond industry expert. “But deep down there is an element of a turf war to it.”
Individual regulators for the banking, securities and insurance sectors didn’t even exist in China until the 1990s, but there is already talk of consolidating them as one entity. This has taken place in numerous other markets, including in Taiwan. It has also been suggested that Beijing might establish a financial ‘super agency’ to keep all the others in line, although this idea has yet to gain momentum.
“There are people who believe that the current framework is better precisely because it creates competition among the regulators,” said Charlie Ye, head of fixed income at UBS Securities in Beijing.