21st Century Business Herald:

Preventing and defusing financial risks is the eternal theme in the development of the financial industry. What progress has been made by the CBIRC in preventing and defusing financial risks since the 18th CPC National Congress? How about the overall risk of the financial industry? What are your next plans in this regard?

Xiao Yuanqi:

Thank you for your questions. As we all know, preventing and defusing financial risks is the eternal theme in the development of the financial industry. We have always adhered to rational thinking and been prepared for worst-case scenarios to defuse risks in key institutions, key links, key business areas, and key regions. In the past decade, we have handled a multitude of outstanding risks. First, the infectivity and spillover of outstanding risks have shrunk sharply. Risks of illegal financial groups have been prudently defused and dismantled; risks of small and medium-sized banks and insurance institutions have been handled, and their reforms and restructuring have been advanced. In the past decade, we have restored and dealt with over 600 high-risk small and medium-sized institutions. We've just mentioned what has been done to deal with risks of small and medium-sized banks. Thanks to these measures, the operation of these banks is quite stable, their development is sound, and their risks are completely controllable. In addition, we have also dealt with a multitude of risks of big companies which involved a wide range of debts in large amounts. For example, debt-to-equity swaps conducted in a way consistent with market principles and the rule of law had reached nearly 2 trillion yuan by the end of last year. 

Second, the trend of financial assets being diverted out of the real economy has been reversed. We have resolutely cleared activities of diverting financial assets out of the real economy, raising leverages in a disorderly manner, and using funds for speculation. For some time in the past, especially in the past five years, the total assets of banking and insurance sectors saw an average annual growth of 8.1% and 11.4%, respectively, lower than that of credit loans and bond investments during the same period, which has fundamentally reversed the momentum of funds circulating solely within the financial sector. Funds entering the real economy have increased substantially, intermediate chains have been greatly reduced, and financing costs have also decreased. 

Third, the financial order has been largely improved through governance. We cracked down on illegal financial activities, released guidelines on preventing and dealing with illegal fundraising, and stepped up efforts to launch campaigns to regulate P2P online lending. More than 5,000 P2P lending institutions have been closed, and regular campaigns have been launched to regulate equity transactions and connected transactions of banks and insurance institutions, with focus on cracking down on illegal shareholders and executives who maliciously hollow out financial institutions.

Fourth, the long-term mechanism for preventing and defusing financial risks has been improved. We have continued to strengthen the Party leadership over the financial system, accelerated the establishment of a regular mechanism for dealing with financial risks, improved corporate governance of financial institutions, especially strengthened management of equity transactions and connected transactions, and given full play to the role of the financial stability guarantee fund and industry guarantee funds, in an effort to build a strong shield for preventing and fending off financial risks. 

Fifth, efforts to crack down on corruption in the financial sector and deal with risks have been stepped up in tandem. We resolutely investigated and handled corruption behind risks and severely punished all kinds of illegal and criminal acts. A number of major cases with bad market impact were investigated and dealt with decisively, and corrupt officials who maliciously hollowed out financial institutions, or were involved in transfers of interests and illegal occupation, were brought to justice. 

Sixth, the level of transparency and the rule of law in financial regulation has been improved. In particular, we have continued to improve the regulatory framework, the principle of prudent regulation, and made oversight more digital and intelligent. Meanwhile, we have strengthened the training of supervisory teams and improved their regulatory capacity so as to build an iron team that is loyal, clean, and responsible. 

Next, the CBIRC will strike a balance between ensuring stable growth and preventing risks in accordance with the fundamental principles of maintaining overall stability, ensuring coordination, implementing category-based policies, and defusing risks through targeted efforts, so as to ensure that no systemic or regional risks arise. Thank you. 

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