According to one recent news report, the PBOC has been instructed to play “a bigger role in managing financial risk.” This didn’t seem too noteworthy in itself until the story went into bit more detail:
A Financial Stability and Development Committee will also be set up under the State Council, or cabinet, state media cited Xi as saying.
No details were given on the committee and on how the role of the People’s Bank of China (PBOC) will be strengthened.
Regulators oversee different parts of China’s complex financial sector, and no singular regulator has a complete picture of capital movements in the system.
That complicates the job of authorities to catch market manipulators who secretly divert funds to risky financial products as they chase higher returns.
For people familiar with the post-2008 responses to the financial system, and especially China’s concerns with its 2015 market crash, initial rumors were that China’s reforms could involve copying Britain’s reforms, where regulatory agencies might be merged into one “super regulator.”
What is, however, being rolled out seems more comparable to the Financial Stability Oversight Council (FSOC), which was created in the United States under Dodd Frank Wall Street Reform and Consumer Protection Act. Its mandate was (and still is) to identify risks in the financial system that could arise in the gaps of the supervision exercised by sectoral regulators like the SEC, Federal Reserve and CFTC. By formalizing coordination under the leadership of the Treasury Department, regulators could minimize the chance that unexpected risks could endanger the health and stability of the financial system.
The details are still vague, but China’s plans strike me as a not too dissimilar approach. But instead of placing leadership with its ministry of finance (which is what happened under Dodd Frank’s identification of the Treasury Department), the committee is formally housed with an equally political body, the State Council. And, very much like the FSOC, the State Council is chaired by the country’s head of the civil service—and includes the heads of each governmental department and agency.
An additional report has noted that the People’s Bank of China will play a coordinating role, presumably acting as a secretariat. The PBOC, unlike the Federal Reserve, is a political body, and reports to the Communist Party. But there have been longstanding debates within China as to whether or not the bank should become more independent.