China Starts Inspection of Financial Regulators, State Banks

(Bloomberg) -- China is inspecting the nation’s financial regulators, biggest state-run banks, insurers and bad-debt managers for the first time in six years to root out corruption in its $54 trillion financial system.

A team led by the Central Commission for Discipline Inspection will start a two-month anti-graft check of the China Banking and Insurance Regulatory Commission, and accept complaint reports from whistleblowers until Dec. 15, according to a statement late Monday.

CBIRC Chairman Guo Shuqing said the move is a reflection of the Communist Party’s focus on financial regulation and told his staff that cooperation with inspectors will be their top priority for now.

The banking regulator is among the 25 financial organizations being scrutinized in the eighth round of checks by the ruling Communist Party since 2017. While previous tours covered other central and local government agencies and state-owned companies, the latest zeros in on entities including the People’s Bank of China, the China Securities Regulatory Commission, the Shanghai and Shenzhen stock exchanges, the biggest state-owned banks, as well as bad-debt managers including China Huarong Asset Management Co.

The move underscores the party’s increasingly tough stance on corruption among cadres and corporate executives. More than 1.5 million government officials have been punished in the years-long campaign, most recently including the execution of Lai Xiaomin, the former chairman of Huarong, and life imprisonment of Hu Huaibang, the former chairman of the nation’s biggest policy bank.

The PBOC, the State Administration of Foreign Exchange, sovereign wealth fund China Investment Corp., and Huarong issued similar statements Tuesday announcing the start of their inspections. The inspection team heads stressed the need to prevent “systematic financial risks,” while the top officials of the inspected agencies vowed full cooperation.

Chinese financial stocks were mixed at the close Tuesday in Shanghai, with Agricultural Bank of China Ltd. slipping 0.3% and Industrial & Commercial Bank of China Ltd. adding 0.2%. Bank of China Ltd. was little changed.

“The recent move on financial companies may bring about uncertainty on whether there will be punitive measures to follow such as fines or greater regulation in lending activities, both of which may seem to provide a cloudy outlook for financial firms near-term,” said Jun Rong Yeap, a market strategist at IG Asia Pte.

It also comes as authorities are cracking down on everything from fintech platforms to property developers to limit financial risks. Global investors have been unnerved by the regulatory onslaught from Beijing targeting its biggest technology companies and other industries as well as a push by President Xi Jinping to create “common prosperity,” a campaign to narrow the wealth divide. 

The inspectors will focus on checking for gaps in political awareness among the party leaders of the organizations and problems that hinder the high-quality development of the financial industry, according to a report last month in the official People’s Daily announcing the upcoming inspections that cited Zhao Leji, head of the CCDI.

In previous inspections, Beijing has sent teams to the education regulator, top universities, local governments, propaganda and cyberspace watchdogs, the biggest state-owned enterprises, and other government departments.

The last inspection of the financial sector was in late 2015 when the CCDI focused on 21 entities. That check didn’t include the four bad-loan managers. The inspections often lead to rectification of breaches and sometimes further probes into suspicious dealings and officials.

Among the offenses identified by the graft fighter six years ago were regulatory officials’ spouses or children holding foreign passports, relatives of stock exchange staff engaging in insider trading, and sovereign wealth fund employees putting golf outings on expense accounts.

©2021 Bloomberg L.P.

With assistance from Bloomberg