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Current Situation and Problems of Local Financial Supervision in China
2016-11-15
By Chen Daofu
Research Report Vol.18 No.4, 2016
I. Current Situation of Local Financial Supervision in China
1. There are great provincial differences in financial supervisory responsibilities and organizational framework First, local financial supervision is scattered in multiple departments. In most provinces in China, several departments are in charge of local financial institutions, quasi-financial institutions and non-financial institutions. For example, pawnshops in some places are managed by economic and trade commission or commercial department; private equity funds are supervised by China Securities Regulatory Commission (CSRC); as for micro-credit companies and financing guarantee companies, China Banking Regulatory Commission (CBRC) formulates policies for them, while specific operation is managed by local finance office (or industry and information technology department in some places); but there are no clear supervisors of non-financing guarantee companies or online lending institutions. Shandong Province concentrates supervisory functions of multiple departments in finance office. In December 2013, Shandong Provincial Government worked out Opinions on Establishing and Improving Local Financial Supervisory System (hereinafter referred to as Opinions). To avoid overlapping functions with central financial supervisory department in Shandong, Opinions states that “local government, based on the unified supervisory rules set by the central government, undertakes corresponding supervision on new types of financial organizations and activities, which are beyond the supervision by central financial supervisory department based in Shandong.” It also states, “with a small amount of clients’ capital, fixed range of business and few risks to spill over, these organizations and activities include new financial organizations like local micro-credit companies, financing guarantee companies, private capital registration and management institutions, and financial trading places such as rights and interests, and commodities (long-term), as well as financial businesses like financing lease, pawn, auction, equity investment, venture investment, and agricultural insurance.” Opinion also says, “local government should strengthen the guidance and regulation of private lending and new types of rural cooperatives, effectively prevent and crack down on financial fraud, illegal fund raising and other law-breaking practices, and continuously enhance protection of financial consumers.”[] Second, finance offices in different places have varying responsibilities. As local financial supervision lack legal basis and authorization on the national level, various places are trying and exploring their way within limits of authority, causing different responsibilities of financial offices in different areas. The vast majority of provincial and municipal finance offices have such responsibilities as enforcing financial laws and regulations, and assisting financial supervision, planning of regional financial development, coordination among financial institutions, and enterprise financing. Besides, finance offices in Shanghai, Liaoning, and Sichuan supervise state-owned financial assets. Third, finance offices have different organizational frameworks. Some provinces, like Shandong and Jiangxi, have established province-city-county financial supervisory system, but most of them only have two levels, province and city. Shandong financial supervision is based on provincial government, with guidance and supervision from higher level of financial supervisory department. It is necessary to seek advice from financial supervisory departments at a higher level before appointing or replacing key officials of those at city or county (city or district) level. Municipal and county governments set finance office on their own, with the title of “local financial supervisory bureau”. Finance offices at city or county (city or district) level can be listed into the same level of government if possible; but if not, they are viewed as the units subordinated to the same level of government and authorized by the provincial government to supervise local financial operation. Jiangxi Province has also established province-city-county financial supervisory system. All cities and counties, except several ones, have set up finance offices.
2. There is a lack of resources for local financial supervision To begin with, facing a large number of supervisees, local financial supervisors are in shortage of necessary personnel, technical knowledge and funding. Nonetheless, local financial institutions, quasi-financial institutions and non-financial institutions have been sprouting up in recent years. As of late 2015, there were 910 micro-credit companies with a loan balance of 941.2 billion yuan. By the end of 2013, China had 8,185 financing guarantee companies with an insurance amount of 2.57 trillion yuan. In addition, with the rapid expansion of online financing comes that of new financing practices like P2P and online crowd funding. As of February 2016, there were 3,944 P2P platforms with a total loan of 500.637 billion yuan, while 125 platforms have some problems. With the rapid growth of quasi-financial institutions, local financial supervision is in serious shortage, because of not only few supervisors but professional ones. Faced with such a large and complex financial system, financial supervision is undertaken by several people in departments like financial department, department of commerce, and industry and information technology department. Generally speaking, provincial finance offices have dozens of people, some of whom are also responsible for other tasks like local government financing. Besides, they lack understanding of finance, professional knowledge and practical experience. Department of commerce and industry and information technology department have fewer staff engaging in financial management, and they sometimes share management staff with other industries. Take financial supervision in Guangzhou as an example, Guangzhou Finance Office now has 41 registered staff members[], including five in department of supervising financing guarantee institutions, and only 1.5 people (others have other tasks) supervising financing guarantee companies. However, there are 76 financing guarantee companies in Guangzhou, making it difficult for finance office to deal with quarterly data of financing guarantee companies[]. Furthermore, there are 3 people supervising micro-credit companies in Guangzhou Finance Office, but 52 such companies. As for professional financial supervision, only 1/5 of staff members of Guangzhou Finance Office have working experience in financial sector. Second, resources for local financial supervision mainly concentrate in provinces and cities, while counties are in extreme shortage of such resources, greatly contradicting with the fact that they have a large number of financial institutions. As for People’s Bank of China (PBC), China Banking Regulatory Commission (CBRC), China Securities Regulatory Commission (CSRC), and China Insurance Regulatory Commission (CIRC), only the first has offices in counties, while the other three commissions cannot be seen under the municipal, especially under the county level. There are only one or two staff members in county offices of CBRC but no offices of CSRC or CIRC at municipal and county level, making it difficult to ensure timely and effective supervision. Many basic or low-level governments do not have independent finance offices, but list them in economic commission. However, the vast majority of village banks and micro-credit companies are located in counties, towns and even administrative villages, so financial supervisors cannot play their roles of effectively preventing and controlling risks, and innovative growth of local financial sector will be seriously hindered. ...
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