Southern Perspective Shenzhen

The majority of government regulations that divide the financial services industries in China are still in place, but as is often the case, there are ways of getting around these regulations.

Companies may apply for China Banking Regulatory Commission (CBRC) approval to engage in insurance or securities activities.

It then becomes the regulatory commission’s duty to oversee and inform the companies as to what ways their subsidiaries are allowed to cooperate, and in what ways they must remain separate.

Chinese banks are pushing the commission for a more universal banking regulatory framework, which is enticing because of all of the business growth opportunities it offers for the developing Chinese Financial market.

With international banks pursuing entry to the Chinese financial services market the CBRC will have the increasingly difficult task of developing regulation.

The CBRC must ensure that the Chinese financial market matures and develops while nurturing a young sector of China’s national economy to compete with mature international competition.

The fastest way to develop the financial market is for local Chinese banks to look for international talent and there isn’t much to slow local banks from hiring western talent, after the massive job losses western banks and financial service sectors.

Many have blamed the shortcomings of Western banks on overzealous greed, and lack of regulation in keeping the banking sector apart from the capital markets.

This accusation very well may be true, and the Chinese financial system should benefit greatly from looking at and analyzing, the cause of the Western banking system’s collapse.

The heavy regulations that led to the slow development of these separated Chinese banking, insurance and securities markets has greatly insulated them from the problems that currently face Western financial firms.

While I believe that this was due more to lucky timing, as opposed to prudent planning, the Chinese financial system appears to be poised to take a leadership role this century.

While the Chinese financial firms were straining to be released from the CBRC heavy regulation, as the early 2009 Citigroup restructuring shows us, this so-called ”universal banking” might not be the perfect solution that it was once touted to be.

There must be some balance between the financial service firms having the freedom to pursue profit and growth, and government efforts to monitor and regulate their activities.

As the western financial meltdown has revealed, massive profits are not necessarily an indication of the health of a business, especially a business that is so entwined with so many nations’ economic stability.

While Chinese banks dream of making the profits their Western counterparts did for some many years, the Chinese market will be much less responsive to the sophisticated financial products offered in the West.

 The Chinese are much less willing to take financial risks, especially now that the weaknesses of the Western banking system have been exposed.