Precise regulation over liquidity of commercial banks in China

After experiencing a series of high-profile events in 2015 and 2016, including the stock market crash, the battle between Baoneng and Vanke, and Ezubao’s P2P lending fraud, the Chinese financial market entered a year of strengthened regulations in 2017, which was marked by the People’s Bank of China’s (PBOC) macro-prudential supervision, China Banking Regulatory Commission’s (CBRC) special corrective actions, and the formal establishment of the Financial Stability and Development Committee under the State Council in the second half of 2017.

Since the beginning of 2018, CBRC upgrades regulatory by promulgation of a series of new regulations, including the Interim Measures for the Administration of Equities in Commercial Banks, the Measures for the Administration of Entrusted Loans of Commercial Banks, and the Circular on Further Deepening the Rectification against Market Chaos in the Banking Industry. Targeting especially at interbank business, wealth management and off-balance-sheet transactions as well as shadow banking, the 2018 corrective actions of CBRC will continue to highlight deleveraging, delinking and elimination of passageway business in the financial system.

Strengthening financial regulation is just a means to an end. The ultimate purpose is to prevent financial risks and improve the ability of financial institutions to serve the real economy. Objectively, ongoing rigorous regulation does have a significant impact on commercial banks’ access to fund resources of credit, thereby restricting their debt expansion.

Wu Jiejiang is a partner at Jingtian & Gongcheng