China’s financial industry leadership changes and the industry implications

Written by Ken Ding || 02 Nov 2011

The annual highest level of economic conference in China, Central Economic Working Conference, which will suggest the direction of the country’s next-year economic policy, is just around the corner and this year is just the first year of China’s twelfth five-year plans.

Every 5 years, China’s national leadership is re-arranged as new leaders take over the key politburo roles. The next transition will happen in late 2012 at that year’s Communist Party of China National Congress and already we are seeing some of the precursors to those changes as lower level posts are shifted.

Last weekend, the top roles at each of China’s three financial regulatory commissions: China Banking Regulator Commission (CBRC), China Securities Regulatory Commission (CSRC) and China Insurance Regulatory Commission (CIRC) were some of the first to change. Shang Fulin, previously the head of the CSRC, has taken over as the head of the CBRC; Guo Shuqing, former chairman of China Construction Bank Corp. (CCB), was named as the head of the CSRC; Xiang Junbo, head of the Agricultural Bank of China Ltd., was appointed as the head of the insurance regulator. Undoubtedly, this biggest shuffle of several top financial regulators indicates that the government is preparing for a new financial reformation.

Let’s take a look at each of the regulators in a bit more detail:

CBRC

The New Chairman

Without an oversea education background or a degree from a top tier university, Shang Fulin, who is sixty years old, is characterized by his industrious and steady working style. He spent several years working in PBOC where he accumulated extensive experience in credit risk management and banking risk control.

CBRC’s Key Challenges

  • How to implement the new regulatory tools based on Basel 3 in the next coming year
  • Longer term: a number of issues caused by an over reliance on revenue growth and lack of focus on other issues such as customer service and innovation

CBRC’s likely future approach

Now, because of the uncertainties in both the domestic and global economic situations, Shang Fulin, as a very moderate regulator, may first continue to keep financial industry steady and control risk by following his predecessor rather than attempt to implement faster or larger reforms.

During Shang Fulin’s time as the chairman of CSRC, he oversaw many small and medium sized enterprise initiatives including the launch of the small and medium sized board and China’s new growth enterprise market. This focus suggests that Shang will continue to help small and medium enterprises which will be very timely as SMEs have been a key part of China’s economic growth, but are facing numerous challenges today.

CSRC

The New Chairman

Receiving high praise because of his ’tough” and flexible working style, Guo Shuqing, has a strong academic background and relatively deep understanding of capital markets. His appointment has raised the market’s expectations for the CSRC.

CSRC’s Key Challenges

  • Imperfect stock listing process
  • Excessive number of IPOs
  • Delay of information disclosure
  • Lack of delisting procedure
  • How to increase returns for retail investors; market focused on benefits for companies 

CSRC’s likely future approach

While he was chairman of CCB, Guo Shuqing successfully helped it go public and find overseas strategic partners. Moreover, he supported the idea that China should accelerate the pace of capital market internationalization, so insiders speculate that Guo Shuqing’s appointment will be a catalyst for the launch of China’s international board allowing foreign companies to list on domestic market. In addition, with Guo Shuqing’s law background, the CSRC may enhance supervision of information disclosure for listed companies, insider trading and executives.

CIRC

The New Chairman

Unlike Shang Fulin and Guo Shuqing, Xiang Junbo has not had any related industry segment working expensive before having never worked for an insurer so will likely face more challenges after he takes over the role.

CIRC’s Key Challenges

Compared with banking industry, China’s insurance industry has grown relatively slowly, with its total assets just exceeding 5 trillion RMB and the present economic situation – interest-rate increases and investment downturn, continues to constrain the development of China’s insurance industry. The biggest challenge for Xiang Junbo is how to lead a successful transition of China’s insurance market from a focus on asset growth to a more sustainable business model, increase their public image, and increase the product scope.

CIRC’s likely future approach

Xiang Junbo’s working experience of audit and PBOC raises an expectation that some longstanding issues in China’s insurance market, such as false data, lack of integrity regulatory, will be further addressed. Moreover, his working experience as head of ABC may also help develop deeper cooperation between banks and insurance companies. The

People’s Bank of China (PBOC)

With the new chairmen of the 3 top regulators settled, there will be further leadership shuffles in China’s financial industry. Now industry participants’ attention is focused on whether Jiang Jianqing, chairman of Industrial & Commercial Bank of China will be appointed as the head of POBC.

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