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What China’s New, Powerful Financial Regulator Means for PBOC



What China’s New, Powerful Financial Regulator Means for PBOC
© Reuters. What China’s New, Powerful Financial Regulator Means for PBOC

(Bloomberg) — China’s sweeping changes to the financial regulatory system will see the central bank lose some of its functions to a new and enlarged oversight body, leaving it focused on broader economic and financial stability management.

The banking and insurance watchdog will be absorbed into a new bureau — a national financial regulatory administration — to oversee all financial sectors except the securities industry, according to a plan released at the National People’s Congress on Tuesday. Under the revamp, the People’s Bank of China will no longer have oversight of financial holding companies and financial consumer protection. 

It’s a similar regulatory model used in Australia, which has three separate bodies overseeing the financial system. In fact, a PBOC adviser said in 2018 it was drawing on the experience of Australia as well as the UK as it shapes its regulatory framework. 

Here are some of the key takeaways from the government overhaul and what it means for the central bank:

Modeling Australia’s system

Xing Zhaopeng, a senior China strategist at Australia & New Zealand Banking Corp., said the changes announced Tuesday would make China’s system most similar to Australia’s. 

Under that model, the Reserve Bank of Australia is charged with conducting monetary policy, working to maintain a strong financial system and issuing the nation’s currency; the Australian Securities and Investments Commission is the nation’s corporate, markets and financial services regulator; while the Australian Prudential Regulation Authority supervises banks, insurers and the pensions industry. 

What Bloomberg Economics Says…

These steps provide clear mandates and boundaries for the institutions regulating the financial sector. In this regard, the new structure removes regulatory gaps and overlaps.

David Qu, China economist

China has kept the China Securities Regulatory Commission, which overseas the securities and futures markets, as an individual entity. The new beefed up financial regulator will oversee micro-level market behavior and financial institutions and consumer rights, while the PBOC will be charged with managing macro-level or systemic risks and financial stability through the macroprudential mandate.

A more streamlined central bank

The PBOC will cut its county-level branches, which will be absorbed to city-level branches, according to Tuesday’s report. It will remove a clutch of branches that each oversees work in multiple provinces, and instead set up 31 provincial-level branches along with five separate branches in cities including Shenzhen.

Changes to the regional branches reverses a structuring plan set up in the late 1990s after the Asian Financial Crisis, according to Bruce Pang, chief economist for Greater China at Jones Lang LaSalle Inc. Some cross-provincial branches were created at the time in order to avoid conflicts with provincial level governments. 

With governance of local authorities becoming more centralized, it means there’s less need for cross-provincial branches, as provincial-level branches can better facilitate the execution of policies, Pang said.

Greater focus on risk control

Duncan Wrigley, chief China economist at Pantheon Macroeconomics Ltd., said the regulatory reforms will “close opportunities for regulatory arbitrage,” such as online finance companies performing de facto banking functions like lending, with much lower capital requirements than banks. 

Ant Group Co. is a case in point. Chinese regulators halted Ant’s would-be record initial public offering at the last minute in 2020 and rushed to issue new rules to regulate online lenders including Ant.

John Yasuda, a professor at Johns Hopkins University who specializes in regulatory governance in China, said there had been a “growing sense that the segmented regulatory system was allowing some financial products to fall between the stools.”

He said the Financial Stability and Development Committee — a regulatory body created under the State Council in 2017 and led by Vice Premier Liu He — was designed to play a coordinating role in regulating the financial system. However, the changes suggest “the forces of consolidation are now gaining the upper hand,” he said.

Some things remain the same

The PBOC remains under the State Council, China’s cabinet. Its goals — according to law — is to set and implement monetary policy as well as prevent financial risks under the leadership of the State Council. 

Unlike independent peers in most developed economies, the PBOC needs the State Council’s approval on major policy steps, such as adjustments to interest rates and money supply. While there’s some scope to manage liquidity at its discretion, Federal Reserve or RBA-style independence remains a distant proposition. 

The regulatory revamp “will make the PBOC more focused on implementing monetary policy, and thus closer to international norms,” said Wrigley “But it is under State Council leadership, and in that respect very different from the independent central banks in most advanced economies.”

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Fed’s Bowman sees potential for interbank digital dollar




Fed's Bowman sees potential for interbank digital dollar
© Reuters. FILE PHOTO: U.S. Federal Reserve Governor Michelle Bowman gives her first public remarks as a Fed policymaker at an American Bankers Association conference in San Diego, California, U.S., February 11 2019. REUTERS/Ann Saphir

(Reuters) – A so-called “wholesale” central bank digital currency could hold promise for the future settlement of certain financial market transactions and processing international payments, Federal Reserve Governor Michelle Bowman said on Tuesday.

While a digital dollar could make sense for interbank transactions, there could be unintended consequences like disruptions to the banking system if the Fed were to design a central bank digital currency that would be directly available to the public, Bowman said in prepared remarks for an event at Georgetown University’s Psaros Center for Financial Markets and Policy.

The U.S. central bank has not yet said if it would embark on an effort to create a central bank digital currency, and has previously said it would seek authorization from Congress and the executive branch before doing so.

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Dollar edges lower; Chinese growth data boosts risk sentiment




Dollar edges lower; Chinese growth data boosts risk sentiment

By Peter Nurse – The U.S. dollar slipped lower in early European trade Tuesday, handing back some of the overnight gains as healthy Chinese growth data boosted risk sentiment.

At 02:05 ET (06:05 GMT), the , which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 101.707, after rising 0.5% overnight.

China’s post-COVID recovery appears to be firmly on track, after data released earlier Tuesday showed that the second largest economy in the world in the first quarter year-on-year, beating forecasts for 4% growth, and registering a sharp acceleration from the previous quarter’s 2.9% reading.

Additionally, surged more than 10%, hitting a near two-year high, reinforcing hopes that the country’s post-pandemic recovery remains on course.

This news has boosted optimism about the global economic recovery, to the detriment of the safe-haven dollar.

The greenback had traded higher on Monday after data showed that increased for the first time in five months, lifting expectations that the will hike interest rates again at its next meeting in May.

“With the market conditions continuing to settle a little … it seems likely now that the Federal Reserve will deliver one last 25bp hike in May and then hit the pause button to wait on the effects of tighter credit conditions caused by the March banking turmoil,” said analysts at ING, in a note.

rose 0.1% to 1.0941, below the one-year high of 1.1075 it touched last week although the is widely expected to continue hiking interest rates this year with inflation still significantly higher than its inflation goal.

The ECB can discuss changing its 2% inflation goal but only after it brings down inflation to that level, President Christine Lagarde said on Monday.

rose 0.2% to 1.2392, after the rose to 3.8% in February, from 3.7%, a weaker result than expected. However, the is still expected to hike interest rates by another 25 basis points at its meeting next month with inflation remaining highly elevated.

Elsewhere, rose 0.5% to 0.6732 as the of the Reserve Bank’s recent meeting showed that the bank may yet hike interest rates further, despite a pause in April. 

fell 0.1% to 134.31, while dropped 0.1% to 6.8716, benefiting from the strong Chinese growth data.

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Asia FX dips as Fed jitters weigh, China GDP offers little support




Asia FX dips as Fed jitters weigh, China GDP offers little support
© Reuters.

By Ambar Warrick — Most Asian currencies moved in a flat-to-low range on Tuesday as growing concerns over the path of U.S. monetary policy kept traders wary of risk-driven assets, while stronger-than-expected Chinese economic data did little to improve sentiment.

rose slightly after data showed that in the first three months of 2023 grew a bigger-than-expected 4.5%, after the country relaxed most anti-COVID restrictions earlier this year.

While the reading indicates that an economic recovery in the country is on track, other readings furthered the notion that a rebound has so far been largely uneven. Softer-than-expected data in particular highlighted continued weakness in the manufacturing sector.

Investment in China’s property sector also slowed, a trend that could weigh on growth later this year. Still, a recovery in China bodes well for the broader Asian economy, given the country’s position as a dominant trading hub.

But most other Asian currencies fell on Tuesday, coming under pressure from strength in the dollar and Treasury yields as markets reassessed their expectations for how high U.S. interest rates will rise.

Risk-heavy Southeast Asian currencies bore the brunt of selling, with the and the down 0.4% each. The was flat after falling sharply overnight, also coming under pressure from new Bank of Japan Governor Kazuo Ueda stating that the bank’s ultra-loose policy will remain for now.

Among outliers for the day, the rose 0.2% as the minutes of the Reserve Bank’s recent meeting showed that the bank may yet hike interest rates further, despite a pause in April.

The and fell slightly on Tuesday, but marked a strong recovery from one-year lows over the past two sessions. show that markets are pricing in a nearly 90% chance the Fed will hike rates by 25 basis points (bps) in May, with a small, but growing possibility of a similar hike in June.

Treasury yields also rose in overnight trade, as hawkish signals from Fed officials and some stronger-than-expected data pushed up fears of more hikes. Focus is now on a slew of Fed speakers in the coming days, ahead of the on May 3.

The prospect of rising U.S. interest rates bodes poorly for Asian currencies, given that it narrows the gap between risky and low-risk yields. Bank of International Settlements head Agustín Carstens also warned that interest rates may need to stay higher for longer due to high inflation and rising risks of instability in the global economy.

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