What’s new: China’s top banking and insurance regulator vowed to prevent the disorderly expansion of capital in the financial sector and set up “traffic lights” for capital.
In its 2022 work meeting Monday, China’s Banking and Insurance Regulatory Commission (CBIRC) said the stop light for the financial sector aims to curb the use of funds by banks and insurers for “blind overleveraging,” financial monopolies and unfair competition, and unlicensed financial business.
The regulator said it will give full play to the positive role of capital in financial activities and will encourage small and medium-sized banking and insurance companies to replenish their capital through multiple channels in accordance with the law and regulations.
The background: China has stepped up oversight of an unbridled expansion by tech groups into financial services since late 2020 amid growing concern over potential systemic risks to financial stability and the outsized market power these companies have built.
In April, China’s top financial authorities summoned more than a dozen tech companies, including Ant Group, ByteDance Ltd. and the financial units of Baidu Inc., JD.com Inc. and Meituan, and imposed a raft of stricter compliance requirements on their financial businesses.
Most of these tech companies have invest in multiple financial institutions. For example, Ant Group controls or participates in a number of financial companies that hold licenses such as third-party payment, consumer finance, microlending, private banking and insurance brokerage. How these companies will need to adjust their equity in financial institutions remains to be seen.
Last week, nine Chinese regulators in a joint opinion tightened restrictions on investment in financial institutions by internet platform companies. In the document, regulators including the National Development and Reform Commission, the State Administration for Market Supervision and the Cyberspace Administration of China urged internet platform companies and the financial institutions controlled and backed by them to strictly implement requirements for capital and leverage ratios.
Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (bob.simison@caixin.com)
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