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Xi calls for risk-reduction role for China central bank

BloombergBEIJING (Bloomberg) — Chinese President Xi Jinping said the central bank will play a stronger role in defending against risks, calling for more work on safeguarding the financial system and modernizing its regulatory framework.

China will set up a commission under the State Council to oversee financial stability and development, Xi said during the twice-a-decade National Financial Work Conference held July 14-15, state media reported late Saturday without defining the panel’s relationship with the central bank. Financial security is part of national security, and the financial sector should better serve the real economy, Xi said.

In a speech to the gathering, Xi said prudent monetary policy, a goal announced in December, should be firmly implemented. The PBOC should also take a stronger macro-prudential policy role, Xi added. He also called for greater yuan exchange-rate reform, an improved foreign-exchange market system, and steady progress in yuan internationalization, according to the reports from state media.

Xi is ramping up efforts to ensure stability ahead of a twice-a-decade leadership transition this fall at the 19th Communist Party Congress. He has elevated curbing risk in the $40 trillion financial industry to a new level with “strategic importance” amid increasingly intertwined business between China’s banks, brokerages, asset managers and insurers.

Xi also called for greater accountability for regulators, saying it’s a “dereliction of duty” if they fail to spot and dispose of risks in a timely manner, and stressed that coordination of financial regulation should be improved, and weak links in supervision strengthened.

“The heavy emphasis on risk prevention will put a damper on much-needed reform in the financial market,” such as developing derivatives markets, said Victor Shih, a professor at the University of California at San Diego who studies China’s politics and finance. “With the wording on holding regulators for any signs of instability, they will definitely err on the side of caution. But if regulations are too stifling, financial talent may leave the country.” 

Premier Li Keqiang also spoke at the meeting, calling for moderate credit growth and keeping liquidity “basically stable,” according to state television. He backed “professional, consolidated, penetrating” regulation of all financial businesses to reduce risks.

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