Financial risk prevention in sharp focus

Regulators release reports; stress control, prudential management

The prevention and control of financial risks are high up on the agenda of the country's top financial regulators, and consensus on this issue can be found in their latest reports produced in response to the discipline inspection of the Communist Party of China.

The People's Bank of China, the country's central bank, said in a report on Sunday that continued efforts will be made to fend off and defuse financial risks. The mechanism to detect, warn of and deal with financial risks should be further completed, said the PBOC.

The central bank's report stated that the management of the financial stability fund, which was initiated in China in early March, should be further optimized. The deposit insurance mechanism should be better implemented so that it can rectify and grapple with market risks at an early stage.

Data from the China Banking and Insurance Regulatory Commission showed that the initial 64.6 billion yuan ($9.3 billion) of capital for the national financial stability fund had been raised and the relevant framework established by the end of June.

The PBOC's latest report said the regulated and sustainable development of the platform economy should be advanced. It also reiterated that the principle of "housing is for living in, not for speculation". A prudential management mechanism should be steadily promoted among local governments. As for the major financial risks, an accountability system should be consolidated to clearly state the responsibilities of all parties concerned.

The State Administration of Foreign Exchange also stressed in a report on Sunday that it will make continued efforts to prevent and defuse risks in cross-border capital flows so that the financial sector can better serve the real economy, and reform and opening-up in the foreign exchange market can be deepened.

The policy changes in major economies and geopolitical tensions will be closely watched to ensure stability in the currency market in China. The hedging product portfolio should be further enriched so that market entities can better manage foreign exchange risks, said SAFE in its report.

SAFE jointly issued a guideline in late May with the Ministry of Commerce and the PBOC to help trading firms address foreign exchange risks. More efforts will be made to help small and micro-sized enterprises to build risk-neutral awareness, SAFE said.

In a report released on Saturday, the China Securities Regulatory Commission, the country's top securities watchdog, said it will further improve its capabilities in foreseeing and addressing various risks by optimizing the risk control and prevention mechanism covering all the sectors in the capital market.

By strengthening coordinated supervision over different areas, markets or industries, the CSRC will steadily cope with risks like bond defaults and fake private equity businesses. By reinforcing law enforcement and related administration, the CSRC will continue to show zero tolerance for violations.

Zhou Maohua, a macroeconomic analyst with China Everbright Bank, said the risks that emerged among certain financial institutions in the first half of this year were partly due to the macroeconomic and industrial fluctuations. But suboptimal corporate governance and ordinary management were also responsible.

"But the regulators' continued efforts to grapple with these financial risks, with special solutions provided to each institution or case, have helped enhance the overall risk control capability in the Chinese financial industry," he said.

Lian Ping, chief economist at Zhixin Investment, said systemic risks in the Chinese financial sector are generally controllable at present. But special attention should be paid to bond defaults among certain property developers, risk exposure of small and medium-sized commercial banks, the renminbi's temporary depreciation, capital outflows in the short run and the concurrence of all such risks.