Bottom line: The latest National Financial Work Conference, chaired by President Xi, confirms continued policy focus on reining in leverage and financial risks, including a pledge to continue with economic deleveraging (particularly in SOEs), and establishing a Financial Stability Development Committee to enhance policy coordination and close regulatory loopholes. We think it indicates that policymakers will maintain a hawkish bias on regulatory requirements and keep monetary conditions relatively tight to slow broad credit growth.
Highlights of the conference: The conference (held every five years) sets the key reform and regulatory framework for China’s financial industry. The past four had a special role in boosting financial developments over the past 20 years, such as establishing AMCs and recapitalization of the big four banks in 1997, creating a banking regulator and shareholding reforms for state-owned banks in 2002, promoting bond financing and launching a sovereign wealth fund in 2007, and further liberalizing the capital account in 2012(Exhibit 1). However, during the latest (held on July 14-15), the focus has shifted from boosting developments to reining in financial risks and leverage. Whereas the Premier chaired the past four conferences, the President chaired the latest one, suggesting that top leaders have put a higher priority on risk management in the financial system.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
