Investors in Chinese financial institutions are starting to worry about a growing risk that the country’s financial sector is not sufficiently supervised, with some analysts predicting that a spate of incidents could push it into crisis territory.
The Financial Stability Oversight Council (FSOC), a bipartisan group of financial regulators, has warned that the government’s policy of “one China” could lead to a financial crisis in the country, which is technically still part of the old Soviet Union but was officially re-established in 1997.
“The Chinese government has been talking about the need to create a one-China policy since the late 1980s, but the implementation has been slow,” said John Binnie, chief economist at RBC Capital Markets.
“This is partly due to a lack of awareness among regulators and regulators are not fully understanding the full scope of the risks, and partly because the market is so fragmented and there are so many institutions involved.”
A key question is whether the policy of one-size-fits-all policies will survive, said Mr Binnie.
“There are a number of risks that could lead us into crisis,” he said.
“It’s not just that the banks are too big, but there are other issues with the way they have been regulated, which could lead them to collapse.”
Mr Binnie said he expected a range of concerns about China’s financial institutions to grow, including the possibility of a new wave of attacks on them, as the country tries to address a growing list of issues.
The FSCO is the US government’s main regulatory body for financial services and is composed of representatives from the US Federal Reserve, the US Department of the Treasury, the Securities and Exchange Commission, the Commodity Futures Trading Commission and the Office of Foreign Assets Control.
It was set up after the financial crisis of 2008 and is chaired by US Treasury Secretary Timothy Geithner.
The FSU, which was established in 2009 to oversee foreign banks, is chaired on a bipartisan basis by US Senator Elizabeth Warren.
Ms Warren said the council’s report would be a “wake-up call” for the global financial system.
“[It] will be really important for the rest of the world to watch the reports, and to get our financial systems back in order,” she said.
“This is a wake-up moment.”
Mr Geithson said the FSU had found “many of the same problems” that the Chinese government had, including a lack the proper supervision of financial institutions.
“What the Chinese are saying is they want to be a part of that and they are very interested in joining the community,” he told ABC Radio.
“I think it is going to be really, really important that the regulators and institutions follow through with their promises to get things right.”
Mr Warren has said she is confident that the FSC is the right body to lead the country out of a financial collapse, saying that if the country cannot meet its commitments, she will step in to impose capital controls.
Ms Warren told the ABC that the council was not a watchdog, but that the United States would work with the FSE to make sure that the banksters were following through with the promises they had made to the American people.
Chinese President Xi Jinping was in Sydney for a state visit.
Last year, the FSB announced it would begin to conduct a series of investigations into the countrys financial sector.
In May, it accused the country of failing to prevent the 2008 global financial crisis.
Mr Biddle said he thought it was unlikely that China’s central bank would be able to effectively police financial institutions in a crisis, but said it could be a potential stumbling block.
“China has been an important financial hub in the past, so we can expect that the central bank will be interested in being a facilitator,” he added.
“If China is not fully trusted, then it could easily become a problem.”
Mr Gordon said he believed that, although China would not be the first country to experience a financial market meltdown, the risk of another such scenario would be significantly greater.
There is no indication of when the crisis could begin, he said, but it could cause a “significant economic shock” and make a “troubling situation” worse.
Topics:business-economics-and-finance,government-and.government-regulation,financial-services,financials,foreign-affairs,china,united-statesFirst posted January 09, 2019 11:07:56Contact Nick CawthornMore stories from Western Australia