Investors in China should follow the financial regulators, not the politics – China’s latest top news

Jeremy Goldkorn’s selection of the top stories from China on October 20, 2017. Part of the daily SupChina newsletter, a convenient package of China’s business, political, and cultural news delivered to your inbox for free. Subscribe here.

Follow the moneymen

Investors: Look at the financial appointments, not the political roles

Eswar Prasad — former head of the International Monetary Fund for China — argues in an interview with CNBC that watching China’s financial regulators and institutions is much more important for investors than observing political appointments:

What comes in the weeks and months following [the conclusion of the Party congress] in terms of the policy actions that we see, appointments to some of the top agencies related to the financial markets, including the PBOC governorship position — those are going to be far more important in setting the tone for macroeconomic policies and financial markets policies in general over the coming years.

Prasad also says that “even more consequential than what we heard from President Xi” in his opening address to the Party congress are media interviews by Zhou Xiaochuan 周小川 (see SupChina summary), outgoing governor of the People’s Bank of China (PBoC): “He’s been cautioning about potential risks in the financial system, but more importantly, he has made an ardent case for how important it is to continue the reforms that he sees as part of his legacy.”

Could it be Whirlwind Guo?

As with political appointees, the decision-making process for selecting China’s financial regulators is opaque. The South China Morning Post says two independent sources claim that Zhou’s successor as governor of the PBoC is likely to be Guo Shuqing 郭树清. He was put in charge of China’s chaotic stock markets in 2011, where his energetic cleanup gave him the nickname “Whirlwind Guo” (郭旋风 Guō Xuànfēng). In February this year, he was made China’s chief bank regulator as chairman of the China Banking Regulatory Commission (CBRC).

In a signal that is consistent with Guo’s possible appointment as central bank governor, he gave a press conference at the 19th Party Congress. Below is a summary of a Caixin report on his speech:

  • CBRC will regulate to make it more difficult for real estate developers to fund residential projects.
  • CBRC will curb off-balance-sheet debts incurred by local governments — these are typically where local governments have transferred land to investment vehicles to use as backing for loans or bond issuances.
  • Guo said that “risks associated with interbank lending and borrowing, wealth management products and off-balance-sheet assets are the focuses of regulatory crackdown, because they may trigger widespread financial risks.”
  • Guo stressed the coordination among different financial regulators on the heavyweight Financial Stability and Development Committee, set up in July this year with the aim of containing risks in four areas: shadow banking, the asset management industry, internet finance companies, and private financial conglomerates.
  • Guo promised that China would continue to open up its banking sector, and said that it was “not a good sign in terms of competition” that the market share of foreign banks in China fell “from 2.4% from a decade ago to 1.29% now.”

Xi Jinping’s thoughts on the price of booze

Xi Jinping is usually rather stiff at public appearances, but in this televised exchange with the Party secretary of a liquor-producing village, Xi laughs, smiles, and gives his thoughts on the price of booze — see SupChina’s subtitled version here.

—Jeremy Goldkorn, Editor-in-Chief