State Interference

Abstract

As shown above, the state permeates every area of the financial system:

• As the regulator: all regulators with a say in the financial sector — CBRC, CSRC, CIRC, PBOC, MOF, SAFE, NDRC — are under the leadership of the State Council.

• As the provider of emergency funds to rescue any beleaguered financial company. The PBOC, Central Huijin Investment Co., the securities, the futures and the insurance protection funds are de facto lenders of last resort. Even in times of crisis, the availability of financial resources does not appear to present a challenge, with huge foreign exchange reserves ensuring a buffered supply.

• As the provider of indirect and implicit guarantees to all larger SOEs and commercial banks. This ensures that funds can flow easily between the two groups, often without any regard to accountability or risk.

• As the dominant shareholder in banks, securities companies, fund management companies, insurers and most of the companies listed on domestic stock markets. Control is direct and indirect (through local governments and SOEs).

• As an employer: the powerful Organisation Department chooses and proposes candidates deemed acceptable for all senior posts, these are then approved and nominated by the relevant regulatory commission. The choice of a candidate is more than likely to reflect his own political acumen rather than any professional qualifications or relevant experience. Further to this, the rotation habit within the industry reduces the effectiveness of monitoring. Experience has shown that private entities are no exception to this.