CHINA ESCAPES "RELATIVELY UNSCATHED" FROM INTERNATIONAL FINIANCIAL WOES

China rebukes west’s lack of regulation

By Jamil Anderlini in Beijing
FT
May 27 2008

Western governments must strengthen their oversight of
financial markets and improve cross-border regulatory
co-operation if they are to avoid future global financial
crises, a senior Chinese banking regulator told the
Financial Times on Tuesday.

“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.

“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.