China: Debt bubbles and Super-regulators [Podcast]

“There is a bubble in the price of bad assets . . . ” : Chairman of Huarong, one of China's largest distressed debt managers. Last month, Frasier Howie joined a call with our clients to discuss the prospect for a Super Regulator in China.

Fraser Howie, esteemed author and journalist on China’s financial system, joined View from the Peak’s Expert Series to discuss the prospects of a China Super Regulator. The call took place just after China’s National Financial Work Conference created a new Financial Stability and Development Committee (FSDC), set up under the State Council, which will take on a larger role in managing financial market risk.

For any regulator, the Chinese financial system is currently a challenge. The system has become very large, complex and opaque with no one entity really understanding the full scope of activities or the risks involved. While there are many good reasons for immediate financial system reform, it will be highly unlikely as the government tries to keep the economy stable before the Party Congress. This year it is all about politics. The all-important Party Congress will be held in October or November, during which President Xi will be re-elected for a second five-year term and many members of the Central Committee and Politburo Standing Committee will be transitioned. China watchers are really in the dark about what is going on behind the scenes and how this will play out over the coming months. President Xi is certainly in charge, but he has created a lot of enemies so he may not be in as strong of a position as people think. It is really a very uncertain environment and anything is possible. For financial reform, it is very clear that nothing substantial will happen before then. There will be a continuation of the current arbitrary, ad hoc regulatory oversight that will focus on private sector financial transactions that could negatively impact the markets, economy, or both. The status quo will be maintained for the balance of 2017.

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