Economy Mar 06

Central bank announces overhaul of financial system

PBOC says it wants China's financial infrastructure in line with international standards

Central bank to lead overhaul of China's financial system
The Shanghai branch of the People's Bank of China, responsible for monetary policy and regulation of financial institutions. File photo taken in September 2019 by Chen Jialiang / Imaginechina/ AFP

(ATF) – China has unveiled a plan to overhaul its financial infrastructure to bring it into line with international norms.

The 'Work Plan for the Overall Supervision of Financial Infrastructure' will be undertaken by the People's Bank of China (PBOC or central bank), the Development and Reform Commission and six other departments – to protect the country's economic infrastructure and avert increasing pressure on China’s real economy.

The Ministry of Finance, China Insurance Regulatory Commission, the China Securities Regulatory Commission and the State Administration of Foreign Exchange are all involved.

The scope of the plan aims to bring financial infrastructure up to international standards and supervision with financial asset registration and custody systems, clearing and settlement systems – including central counter-parties that carry out centralized clearing operations, trading facilities, transaction reporting databases, important payment systems, basic credit reporting systems, and operating agencies.

Critics have long said that China's financial reforms are incomplete in the country's transition from a state-planned economy to a market-oriented one. The banking sector has been criticised as inefficient and there have been problems linked to shadow banking, as well as deficiencies in initial public offerings on the stock market, plus delisting mechanisms and corporate governance.

Unifying regulatory standards, improving governance

The PBOC says its next step will be to work closely with various departments and localities to advance these reforms, to unify regulatory standards, improve access to management, optimize facility layout, improve the governance structure, and promote the formation of a rational layout, effective governance, and create an advanced reliable and resilient financial system.

In its announcement, the central bank said: “Financial infrastructure refers to the system and institutional arrangements for providing basic public services for various types of financial activities. It occupies a pivotal position in the operation of financial markets and is the basic guarantee for the stable and efficient operation of financial markets.

"It is the implementation of macro-prudential management and strengthened risk prevention. Strengthening the overall supervision of financial infrastructure is one of the important concerns in the reform of international financial supervision after the financial crisis in 2008.

"International supervisory organizations have issued relevant guidelines that require countries to comply with.”

“After years of construction, China has gradually formed an infrastructure system that supports financial market trading activities such as currency, securities, funds, futures, and foreign exchange, with complete functions and stable overall operation.

"With the rapid development of financial markets, the security and efficiency of financial infrastructure also face certain challenges, and still has to be strengthened in terms of legal construction, management coordination, planning and construction.

"In order to promote the construction of a modern financial system with international competitiveness and the effective use of financial market pricing and resource allocation functions, it is necessary to further strengthen the overall supervision and planning of China's financial infrastructure,” the PBOC said.