China's regulatory crackdown vital for health of financial market despite investor concern

By Wang Jiamei Source:Global Times Published: 2017/5/16 22:18:39

Regulatory crackdown vital for health of financial market despite investor concern

Chinese policymakers should stick to the ongoing crackdown against excessive financial leverage, even though tightening regulatory scrutiny may cause a downturn in the market.

The China Banking Regulatory Commission (CBRC), the country's banking regulator, published on Monday a plan to complete 46 legislative programs this year, with the aim of tightening risk controls on such issues as debt-to-equity swaps, wealth management products and peer-to-peer lending. According to the CBRC, the new legislation would place a greater emphasis on financial risk management so as to plug regulatory loopholes and to ensure that there will be no systemic or regional financial risk.

This seems to be a signal that the CBRC intends to continue the clean-up of irregular practices in China's banking system, in spite of worsening market sentiment over the tightening regulatory crackdown on shadow finance.

Over the past month, China's securities, banking and insurance regulators have all rolled out various measures to clamp down on financial leverage, leading to plunges in both the stock and bond markets. The benchmark Shanghai Composite Index closed on Friday with a fifth consecutive week of losses, while the yield on 10-year treasury notes hit a two-year high of 3.7 percent on Wednesday.

Against such a sluggish market background, some market players started to call for less regulatory intervention or an easing in the crackdown so as not to hurt market sentiment too much.

The intensified regulatory efforts have caused concerns over liquidity, resulting in market fluctuations in recent days. But it should be pointed out that if the regulators do not clean up irregular practices and risks in the market, there would be no way to develop a healthy financial market in China.

Frankly, too many problems have been allowed to emerge in the current financial market, and they need to be clearly identified and addressed to ensure the healthy development of China's banking, bond and securities markets. Such a correction process involves tackling corruption, formulation of regulations and strengthened supervision, which will inevitably affect the stock, bond and other financial product markets.

The problems in China's financial market involve complicated vested interests and have not come into being over a short period of time, so stringent measures are needed to correct them. Now we need both determination and political wisdom to properly address the problems. 

While such measures will of course dampen the market, unnerving investors, they are needed to root out the problems.

Righting a wrong in the financial market may affect more than just the problem itself, but it is a necessary step, without which the market would remain problematic, and a source of uncertainty and pressure for the Chinese economy.

The author is a reporter with the Global Times.
Newspaper headline: Regulatory crackdown vital for health of financial market despite investor concern


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