context: With increased confidence in economic growth returning, monetary easing is more targeted, opening the door for a flurry of financial de-risking actions. In addition to financial de-risking, capital market reform is a growing part of the conversation on ensuring financial stability, but overcoming institutional barriers that allow politically connected firms to use the system to their advantage and exclude smaller firms remains the main challenge.
Underscoring the importance of financial de-risking, CBIRC (China Banking and Insurance Regulatory Commission) released banking data through June 2020
- banking industry assets were C¥301.5 tn, an increase of 9.8 percent y-o-y
- balance of non-performing loans was C¥3.6 tn, an increase of C¥400.4 bn since January
- non-performing loan rate was 2.10 percent, an increase of 0.08 percentage points from January
CBIRC spokesman noted the overall financial risk is controllable, but potential risks still loom large, noting
- although the balance of non-performing loans has not increased significantly, it is expect NPLs (non-performing loans) will rise in H2
- small and medium-sized financial institutions have serious problems
- shadow banking risks are returning
- we must be vigilant against violations
- NPL disposals should 'increase appropriately' compared to 2019 and banks should not conceal them
- banks should recapitalise
- if market channels cannot be used then use government funding
Guo Shuqing 郭树清 CBIRC chair published an essay on 3 July discussing gaps in corporate governance
- weak Party leadership
- opaque and unstandardised shareholder relations
- ineffective boards of directors and senior management
State Council Financial Development and Stability Committee chaired by Liu He 刘鹤 vice-premier held a meeting focusing on implementing their 'zero tolerance' policy for financial fraud through actions like class-action suits and improving the de-listing system. The meeting was not purely a reaction to recent market events, but rather a further step in long-term plans to improve capital markets, according to Cheng Shi 程实 ICBC International chief economist.