Goldman: China’s new financial watchdog to prevent ‘regulatory arbitrage’ by giant firms like Citic, Ant Group

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China’s proposed new watchdog will level up regulatory requirements and integrate efforts to oversee multi-sector financial firms like Ant and Citic Group, US bank says

The revamp is part of a broader reshuffle of government departments proposed by Premier Li Keqiang to China’s ongoing legislative meetings for approval

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Chinese Premier Li Keqiang speaks during the opening session of China’s National People’s Congress in Beijing on Sunday. Photo: AP

Zhang Shidongin Shanghai

Published: 6:05pm, 8 Mar 2023

China’s proposed National Financial Regulatory Commission will better tackle lingering issues that threaten to destabilise the economy, ranging from a housing bubble to the unbridled expansion of financial conglomerates, according to Goldman Sachs.

The new watchdog, which will combine the power of the China Banking and Insurance Regulatory Commission (CBIRC) and part of the central bank’s oversight job, will level up regulatory requirements and integrate oversight of conglomerates such as Ant Group and Citic Group, Goldman said.

“We see the proposals as a ‘consolidation’ of financial regulations to strengthen institutional supervision, the supervision of behaviours and the supervision of functions,” Yang Shuo, a Hong Kong-based analyst at the US bank, said in a report on Wednesday. “We expect more measures on liquidity and capital to prevent regulatory arbitrage [by] these financial conglomerates.”

Premier Li Keqiang proposed the plan to China’s ongoing legislative meetings for approval, coming soon after authorities ended a crackdown on fintech giants, internet platform companies and online-tutoring firms, whose businesses straddle several regulatory borders. Beijing has also clamped down on shadow banking and peer-to-peer lending platforms, and dismantled tycoon Xiao Jianhua’s empire under Tomorrow Group.

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The new commission under the State Council will replace the CBIRC. Other major shake-ups include the creation of a data bureau, the restructuring of the technology and science ministry, and a 5 per cent cut in government staff numbers.

China’s financial sector is now viewed as big enough to hold sway over its economy. The combined assets owned by banks and insurance companies total 400 trillion yuan (US$57.4 trillion) and the total market capitalisation of onshore stocks amounts to US$11 trillion.