China's central bank's top researcher has called for the People's Bank of China (PBOC) to provide greater supervision over the financial system, without advocating for major changes in the country's regulatory architecture. "In the current environment of frequent financial chaos, we should strengthen the central bank's overall role" rather than have the bank serve in a coordinating role, Xu Zhong, head of PBOC's research department said in an article published on Sunday by financial magazine Caixin.
The central bank researcher advocated maintaining China's current regulatory architecture of one central bank and three regulators. But he went on to say that the Financial Stability and Development Committee, established by the State Council in November to address systemic financial risk, should coordinate horizontal policy making, coordination and implementation.
Xu's comments give the strongest indication to date that the government is unlikely to move forward with plans to merge its banking and insurance regulators, or overhaul its oversight architecture with the creation of a super-regulator. A report last month said that a plan to merge the China Banking Regulatory Commission and the China Insurance Regulatory Commission was being drafted.
The central bank researcher said "the rights and responsibilities" of the central bank aren't equal, since PBOC lacks supervision power, but assumes responsibility for financial bailouts. Xu said that regulatory arbitrage in the Chinese system was "more serious" due to the institutional legacy of the planned economy, which separated supervision of financial activities. "There is a lack of uniform regulation of the same financial products," Xu said, while the fragmented regulatory system led to diffusion of professional skills and knowledge.
Xu was also critical of local governments, provincial associations, and local banking regulatory bureaus for failing to detect how private capital participated in the reorganization of some small and medium-sized financial institutions, to the detriment of major shareholders and the operation of those institutions.