Merger expected to help control risks
The central government is planning to combine the functions of the two financial watchdogs, the China Banking Regulatory Commission (CBRC) and the China Insurance Regulatory Commission (CIRC), in an effort to strengthen financial supervision.
According to a State Council reform plan that was presented on Tuesday for deliberation during the ongoing 13th National People's Congress , China will abolish the CBRC as well as the CIRC, but will establish a regulatory commission for both the banking and the insurance sectors. [Special coverage]
"The merger will lead to unified management [of the two sectors] and reduce the room for regulatory arbitrage such as shadow banking," Moody's noted in a statement it sent to the Global Times on Tuesday.
The financial research center at Bank of Communications said in a statement it sent to the Global Times Tuesday that the move will support the stable development of the domestic financial market, as well as preventing systemic risks.
Experts the Global Times talked to predicted that the new body may also draw in the China Securities Regulatory Commission (CSRC) at some point.
Zhou Yu, director of the Research Center of International Finance at the Shanghai Academy of Social Sciences, said that combining operations has been a trend in China's financial sector in recent years, especially in the banking and insurance sectors.
"For example, many insurance companies' wealth management products are now also sold in banks," Zhou said. "The two areas' businesses are not only similar, but also cross into each other. As a result, they will also infest each other with their own risks," Zhou told the Global Times on Tuesday.
According to Zhou, risks have been emerging in both sectors in the past few years, with insurance companies engaging in risky capital speculation as well as expansion, while banks have been developing their off-balance-sheet activities.
In 2015, domestic insurance giants Anbang Insurance Group and Foresea Life Insurance significantly increased their shareholdings in domestic real estate developer China Vanke.
In February 2017, Foresea Life's former chairman Yao Zhenhua was barred by the government from the insurance sector for 10 years for illegal use of insurance funds.
According to Zhou, the separate management systems created many grey areas free from government supervision, allowing for some "innovative" financial businesses.
The government set up a Financial Stability and Development Committee in November 2017 to coordinate financial management.
"Unified management is a trend. I predict that merging the management of the banking and insurance sectors will be relatively easy given the similarity between the two sectors, but eventually the securities sector will also be included in this management model," Zhou said.
Xi Junyang, a finance professor at the Shanghai University of Finance and Economics, said that banks are more adept at controlling risks. "Through merging of management, banks' risk-control methods might be transmitted to the insurance sector," he told the Global Times on Tuesday.
Zhou pointed out that tightened management does not mean that opening-up in the financial sector will be put on hold.
The government has launched a series of policies, such as amending the yuan's central parity exchange rate mechanism and setting up stock link programs, in order to speed up financial reforms.
"More opening-up actually increases the management requirements, as opening-up brings risks, such as cross-border capital flows," Xi said.
According to Xi, the government has tightened its management of the financial sector in recent years, and this trend will likely continue in 2018.