China says west's lack of market oversight led to subprime crisis
Jamil Anderlini | Wednesday, 4 June 2008
FT Syndication Service
BEIJING: Western governments must strengthen their oversight of financial markets and improve cross-border regulatory cooperation if they are to avoid future global financial crises, a senior Chinese banking regulator told the Financial Times recently.
"I feel the western consensus on the relation between the market and the government should be reviewed," said Liao Min, director-general and acting head of the general office of the China Banking Regulatory Commission (CBRC).
"In practice, they tend to overestimate the power of the market and overlook the regulatory role of the government and this warped conception is at the root of the subprime crisis."
When asked what other countries could learn from China's regulatory system, he pointed out that Chinese financial institutions needed CBRC approval to launch individual product types, making it nearly impossible for exotic financial instruments, such as the ones blamed for the subprime crisis, to exist in China.
The majority of China's financial sector is still owned by the state, and the government retains tight control over many aspects of the industry, including senior personnel decisions at the country's largest banks, insurers and brokerages.
Thanks to China's lack of integration with global financial markets as well as the cautious regulatory approach of the CBRC, Chinese banks have emerged relatively unscathed from the global credit crisis, which so far has caused nearly $380bn of losses at western financial institutions.
Apart from Bank of China, which reported a subprime-related writedown of nearly $1.3bn by the end of last year, no other Chinese bank has been seriously affected.
Mr Liao said the US downturn and the steep fall in the value of the US dollar that came in the wake of the crisis has had a much greater impact, exacerbating "hot money" flows into China and contributing to asset bubbles and rising inflation.
The CBRC was established five years ago and since then the country's previously moribund financial sector has been transformed. The largest state-owned banks have overhauled their internal structures and sold shares to strategic investors such as Bank of America, Royal Bank of Scotland and Goldman Sachs before listing on the Hong Kong and Shanghai stock markets.
The CBRC is advocating new international laws requiring governments to provide timely, accurate information in times of crisis.
BEIJING: Western governments must strengthen their oversight of financial markets and improve cross-border regulatory cooperation if they are to avoid future global financial crises, a senior Chinese banking regulator told the Financial Times recently.
"I feel the western consensus on the relation between the market and the government should be reviewed," said Liao Min, director-general and acting head of the general office of the China Banking Regulatory Commission (CBRC).
"In practice, they tend to overestimate the power of the market and overlook the regulatory role of the government and this warped conception is at the root of the subprime crisis."
When asked what other countries could learn from China's regulatory system, he pointed out that Chinese financial institutions needed CBRC approval to launch individual product types, making it nearly impossible for exotic financial instruments, such as the ones blamed for the subprime crisis, to exist in China.
The majority of China's financial sector is still owned by the state, and the government retains tight control over many aspects of the industry, including senior personnel decisions at the country's largest banks, insurers and brokerages.
Thanks to China's lack of integration with global financial markets as well as the cautious regulatory approach of the CBRC, Chinese banks have emerged relatively unscathed from the global credit crisis, which so far has caused nearly $380bn of losses at western financial institutions.
Apart from Bank of China, which reported a subprime-related writedown of nearly $1.3bn by the end of last year, no other Chinese bank has been seriously affected.
Mr Liao said the US downturn and the steep fall in the value of the US dollar that came in the wake of the crisis has had a much greater impact, exacerbating "hot money" flows into China and contributing to asset bubbles and rising inflation.
The CBRC was established five years ago and since then the country's previously moribund financial sector has been transformed. The largest state-owned banks have overhauled their internal structures and sold shares to strategic investors such as Bank of America, Royal Bank of Scotland and Goldman Sachs before listing on the Hong Kong and Shanghai stock markets.
The CBRC is advocating new international laws requiring governments to provide timely, accurate information in times of crisis.