China’s Anti-Graft Body Criticizes Central Bank, Regulators

(Bloomberg) -- China’s top disciplinary watchdog sharply criticized more than two dozen financial regulators, state banks, insurers and bad debt managers following months of investigations.

The financial agencies had common problems in meeting the objectives of the Communist Party’s leadership, including gaps in their work to implement the Party’s major strategy, insufficient awareness and mechanisms to prevent financial risks, and slow progress in making financial reforms, the Central Commission for Discipline Inspection said in a statement Thursday.

The rare rebuke suggests an ongoing focus on stamping out financial risks, with the investigation taking place as markets reel from a wave of defaults related to the property sector. The public statement comes as the central bank is cutting interest rates and directing banks to lend more to support housing demand and the economy. 

This “underscores the bottom line of stabilizing growth and preventing risks, and signals faster implementation of financial reform policies announced before,” said Bruce Pang, head of macro and strategy research at China Renaissance Securities Hong Kong Ltd. in Hong Kong.

Corruption around key positions and areas was prominent at some agencies, while bureaucracy and extravagance was still a big problem, the nation’s top anti-graft body said. It ordered financial agencies to rectify the problems, including by conducting comprehensive reviews for hidden risks and pushing for financial reforms.

The feedback was given to 25 institutions which have been under review since October. They included the nation’s central bank, the People’s Bank of China; regulators like the China Banking and Insurance Regulatory Commission; the Shanghai and Shenzhen stock exchanges; the biggest state-owned banks, like China Construction Bank Corp and Bank of China Ltd.; major financial groups such as China Investment Corp; and bad-debt managers including China Huarong Asset Management Co.

Chinese President Xi Jinping has continued to press ahead with his signature anti-corruption drive after almost a decade in power, most recently focusing on law enforcement. The campaign is in tandem with a sweeping crackdown on the country’s private sector that has targeted top technology and property firms. 

The probe is the first systematic review of the financial sector since 2015, and has brought down over 20 officials. This inspection follows previous rounds which focused on the education sector, major state-owned enterprises, government departments, local authorities and others. 

“Revolving Door”

The statements highlighted the problem of corruption among officials who have left the regulators for positions in the private sector, according to Feng Chucheng, partner of independent consultancy Plenum.

“Authorities will probably review the officials that have left the financial regulators in recent years to see whether their departure was reasonable,” said Feng.

In a separate statement on the People’s Bank of China, CCDI official Gao Fei highlighted the fact that the central bank hasn’t done enough work to implement Xi’s objectives on financial work. The PBOC’s guidance to financial institutions fell short of expectations, and it still needs to do more to address private and small businesses’ financing problems, according to the statement.

The anti-graft body criticized the CBIRC, the banking regulator, for the lack of precision and coordination of its policies and frequent corruption cases among officials. It urged the CBIRC to strengthen its supervision of capital and prevent its “wild growth.” 

The CCDI said the problem of a “revolving door” is grave at the banking regulator, referring to corruption among officials who left official posts for company positions. The banking regulator should learn lessons from major corruption cases, it said, including those of Lai Xiaomin, Huarong’s former chairman, Yang Jiacai, a former assistant chairman at the banking watchdog, and Cai Esheng, a former vice chairman of the banking regulator.

Yi Gang, the PBOC’s governor, said the central bank will correct its wrongdoings and enhance its macroeconomic policies and financial regulation, according to the statement. Guo Shuqing, the CBIRC’s chairman, said the banking regulator completely agrees with the CCDI on its feedback and will rectify the problems.

China’s big four national bad-loan managers, including Huarong, were criticized for their lack of focus on their main business and risk controls. The firms said they would strengthen disposal of non-performing assets, step up anti-corruption work and draw lessons from the Lai case.

State-owned banks including Industrial & Commercial Bank of China Ltd. were found to have lax governance and the risk of corruption in key areas like loans, the inspection team said. The lenders also failed to provide enough support to serve the real economy and lacked financial risk prevention and control. They were ordered to beef up internal controls and educate employees on corruption cases in the financial sector to root out graft.

The CCDI has received reports on certain leaders and cadres at the agencies, and will follow up on these, it said.

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With assistance from Bloomberg