China's Watchdog Revamp May Set Stage for More Mergers

(Bloomberg) -- China’s sweeping overhaul of its financial regulatory system probably sets the stage for further watchdog mergers, according to industry professionals.

Following Tuesday’s announcements -- which included transferring more power to the central bank and merging the China Banking Regulatory Commission and the China Insurance Regulatory Commission -- here’s what fund managers and analysts predict:

Capital Securities

  • The government has chosen to leave out the China Securities Regulatory Commission for now because banks and insurers are more systemically important given the size of deposits and premiums, says Shanghai-based analyst Liao Chenkai
  • “Further consolidation is possible”

Bank of Communications

  • “At present, combining banking and insurance regulators is relatively easy and the market can smoothly adjust to it. Compared with the capital markets, insurance business is simple and its way of risk management is similar to banks,” says Chief Economist Lian Ping
  • “It’s getting clear that further consolidation is on the way”

Fidelity International

  • The regulatory tightening is pressuring onshore funding costs and some Chinese borrowers, says Bryan Collins, head of Asian fixed income
  • Additional onshore benchmark rate hikes could be detrimental to the generally constructive macro outlook

Linklaters

  • There are “internal and external forces pushing for reform of the domestic capital markets and it is expected that the CSRC may eventually also be consolidated into an ‘umbrella’ regulatory authority,” says Shanghai-based partner John Xu
  • “However, the PRC government may want to adopt a relatively measured approach in the short- to medium-term to ensure a healthy development of capital markets”

Trivium China

  • PBOC can take a macro view while the merged CBRC and CIRC can focus on individual organizations’ compliance, but execution is key, says Andrew Polk, co-founder of the research firm in Beijing
  • “Streamlined regulatory authority should lead to more clarity for market participants when it comes to investing in China, but these moves will do little to affect near term economic growth”

Zhao Sheng Law Firm

  • Don’t see any immediate implications for the banking industry though more regulations could be announced for insurance as a result of the merger, says Eric Liu, partner at the Shanghai-based firm
  • Steps would curtail insurance companies’ freedom when it comes to operational and investment choices, with the regulator focused on asset safety

China Beige Book

  • “Xi Jinping has not engaged in any meaningful market reform to date, gets his term limits removed, and creates a ‘National Market Supervision Administration’,” says Derek Scissors, chief economist in Washington. “What’s it going to take for people to stop spouting nonsense about pending market reform?”

©2018 Bloomberg L.P.

With assistance from Jun Luo, Alfred Liu, Gary Gao

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