By Jamil Anderlini in Beijing
A bitter turf war between China’s top two financial watchdogs – the China Banking Regulatory Commission and the People’s Bank of China – is obstructing reforms and efforts to tackle risk in the financial sector, according to officials from both agencies.
From the outside, the Chinese system can look like a monolithic structure but the various arms of the bureaucracy are often engaged in vicious institutional battles that can delay or even thwart policy.
In just one example of how rancorous the split has become, several people familiar with the matter said that a Financial Stability Council chaired by the PBOC, the central bank, and including the heads of the main financial regulatory bodies had met just once since it was established last August. The dispute comes after several high-profile defaults in recent weeks including the first public domestic bond default in modern history and a small bank-run in eastern China.
The council has not been able to meet because of opposition from the CBRC, which has vehemently objected to what it sees as a power grab by the PBOC.
In recent weeks the central bank, which has responsibility for overall financial stability in China, has expressed frustration at the CBRC’s unwillingness or inability to rein in off-balance sheet activity in the state-controlled banking system, which has ballooned in recent years.
The PBOC also feels the CBRC is too close to the state banks and has failed to get a handle on the scale of problem loans at smaller lenders.
“One of the biggest roadblocks to financial reforms in China now is the fact the PBOC doesn’t think the banking regulator is capable of handling the risks associated with that reform,” said one person familiar with the matter.
The most pressing of those reforms include a long-delayed plan to introduce deposit insurance and the liberalisation of interest rates, which is already under way in the so-called “shadow banking” sector.
CBRC officials believe that they are being unfairly blamed for not managing risks that were created by the PBOC and which they have warned about for years.
The PBOC declined to comment while the CBRC said the two institutions have a co-operative relationship. (FT)
