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Musical chairs

31 October 2011 By Wei Gu

China’s leaders are playing it safe with the surprise reshuffle of the country’s financial watchdogs. The country’s financial system needs regulators who can clean up bad debts, cut through red tape and bring in more foreign competition. Promoting two home-grown bank heads, and moving an existing regulator to a more important post, aren’t likely to deliver any of these.

The changes look like a vote of support for China’s big state banks. Shang Fulin, formerly at the central bank before moving to the securities watchdog, now leads the banking regulator. Guo Shuqing, chairman of China Construction Bank, becomes the new securities regulator. Xiang Junbo, chairman of Agricultural Bank, takes over at the insurance regulator. All three have served as deputy central bank governors, but have less diversified experience than those they replace.

The trio may be less international in their outlook, too. None has obtained a degree from abroad, and are less known for their fluency in English than say, outgoing banking chief Liu Mingkang, a graduate of City University of London. Shang and Xiang have mostly worked on domestic matters. Guo comes closest to an outward-facing job, having led a bureau that manages China’s foreign reserves.

A strong sense of continuity looks likely to prevail. All three men have participated in important reforms, such as bringing in foreign strategic investors and making state-owned shares tradeable. But those reforms have only scratched the surface. State influence has arguably risen in China’s financial institutions during their rein. Foreign investors’ roles remain minimal in the financial markets.

Moreover, bureaucracy and overlap will limit their powers. Many listed companies answer to numerous regulators. Banks, for example, answer to the Ministry of Finance via investment vehicle, Huijin. State owned enterprises answer to the State Administration of State-Owned Assets. Bond markets are regulated by no fewer than three regulators, depending on what kind of company is issuing the bond. That tangled situation will remain unresolved.

As China prepares for a change of president and premier, to be announced late 2012, broad personnel changes will be due. But this early-stage game of musical chairs suggests that dramatic reforms are not in the works.

 

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