China to ramp up implementation of financial stability law: senior official

Financial regulatory authorities will ramp up the implementation of the financial stability law, an institutional guarantee of increased capabilities in averting systemic risks, Lu Lei, deputy head of the State Administration of Foreign Exchange (SAFE), China’s forex regulator, said at a key forum on Saturday.

Lu made the remarks via video while releasing an annual report on China’s financial policy at the 2022 Tsinghua PBCSF Global Finance Forum in Beijing where the country’s financial risk prevention knowhow amid multifaceted uncertainties is in focus.

To ensure the smooth and healthy operation of the financial system, financial authorities need to speed up the implementation of the financial stability law, Lu said.

The law will be a key measure for China to establish a long-term mechanism for maintaining financial stability, and a solid institutional guarantee for preventing major financial risks and improving the ability to control systemic financial risks, he continued.

Earlier in April, China’s central bank unveiled draft financial stability legislation, including the creation of a financial stability guarantee fund, laying the legal groundwork for a holistic, sector-spanning and cross-departmental approach to preventing systemic financial risks.

Financial authorities need to speed up the establishment of a financial stability guarantee fund in line with China’s national conditions. It has been a common tool for developed economies including Europe and the US to set up financial safety nets, such as the European Financial Stability Facility (EFSF), Lu said.

Speaking of external shockwaves and risks, Guan Tao, global chief economist at BOC International, said at the forum that other than the US Federal Reserve’s monetary tightening, geopolitical risks are also worth noting.

The Russia-Ukraine conflict, a black swan, would result in a raft of direct and indirect implications, “and even the indirect implications would far outstrip the direct impact,” Guan said, urging to strengthen risk prevention in the sphere of foreign exchange while stabilizing market expectations.

The marked strength of the Chinese currency over the past year was also discussed at the forum, with Guan attributing the trend-bucking strength to the fundamentals of the Chinese economy, as buoyed by resilient industrial and supply chains as the country took the lead in containing the COVID-19 and resuming life and production.

The yuan exchange rate index rallied 8 percent last year, according to the China Foreign Exchange Trade System. The annual growth rate was the highest on record, according to Guan.

With overseas holdings of yuan-denominated assets having already reached a considerable volume, changes in overseas investors’ exposure to yuan assets tend to have some certain impact on the domestic stock, bond and foreign exchange markets, he emphasized.

Also, US-listed Chinese stocks have seen drastic fluctuations since the beginning of the year, especially after March 10 when the US Securities and Exchange Commission announced a provisional list of companies that may be forced to delist.

Under such circumstances, Chinese regulators have kept releasing positive signals to stabilize the market, Lu said.

Chinese regulators have ramped up efforts to promote the implementation of new regulations for firms’ overseas listing and to ensure financing avenues are unblocked. Also, they have been pushing for bilateral talks on audit cooperation with the US, aiming to build up predictable international regulatory environment and to stabilize the stocks, the SAFE deputy head went on to say.

Source: Global Times

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