Caixin
Jan 07, 2021 08:52 PM
FINANCE

China’s Central Bank Lays Out Top Tasks to Tackle in 2021

The Beijing headquarters of the People's Bank of China.
The Beijing headquarters of the People's Bank of China.

The People’s Bank of China (PBOC) has outlined its key tasks and goals for 2021 after holding its annual meeting to set its policy agenda, vowing to boost green finance, push ahead with bond market reform, tighten oversight of fintech companies, and increase its participation in global governance.

The central bank listed its priorities under 10 main categories covering a range of issues including monetary policy, controlling risks, offering support for companies and employment, and advancing yuan internationalization and interest-rate reform, according to a Wednesday readout (link in Chinese) of the meeting which was held Monday. The agenda mostly echoes the decisions made by the Politburo, the Communist Party’s top decision-making body, at its meeting in December to agree economic work for 2021 and by the Central Economic Work Conference (CEWC) at its annual policy-setting meeting later that month.

The PBOC, like other government ministries and agencies, holds an annual work meeting after the CEWC to agree and disseminate its tasks for the year ahead. The central bank meeting last year put forward seven main points of action which included monetary policy, controlling financial risks, interest-rate reform, and fintech development and supervision. This year’s list has been expanded to 10 points of action with additional areas of focus that reflect the new priorities of the party or seek to address problems that emerged in 2020. These include green finance, global financial governance and reform of the bond market which was rocked by defaults and scandals in the second half of 2020.

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The central bank devoted a chunk of its agenda for financial market reform to the bond market, pledging to “take the lead” in formulating a plan to develop the market, improve the legal system governing it and mechanisms to resolve defaults. It also vowed to improve the infrastructure connecting the country’s two bond markets, unify market standards and boost law enforcement, initiatives that have already started. It also committed to stepping up punishment for misconduct such as debt evasion and fraudulent bond issuance.

In an acknowledgement of regulators’ own failings, which some critics, including former Finance Minister Lou Jiwei (link in Chinese) say have contributed to the problems in the financial sector, the PBOC said it would “pay close attention to filling in the shortcomings of the regulatory system.” Action will be taken to “ensure that financial innovation is developed under the premise of prudential supervision,” it said.

Reflecting President Xi Jinping’s pledge in September that China aims to reach peak carbon emissions before 2030 and become “carbon-neutral” by 2060, the PBOC vowed to play its part in meeting those goals. The central government has already released guidelines on investment and financing activities to develop the green economy, with measures including improving the carbon emissions trading market and developing climate-friendly financial products.

The central bank said it would improve the policy framework and incentive mechanisms for green finance to guide financial resources to support green development. The financial system’s ability to manage climate change-related risks will also be improved and the central bank will work to ensure that the pricing of carbon emissions traded under a national scheme that starts on Feb. 1 is “reasonable.” The statement reiterated measures PBOC Governor Yi Gang outlined (link in Chinese) in December to improve standards for green finance and consider imposing requirements on financial institutions to disclose environment-related information.

The PBOC said it will continue using monetary and credit policies to support small businesses, and directing financial institutions to enhance support to agricultural industries, tech innovations, small businesses and privately owned companies. On Monday, the central bank and four other government departments, released a notice (link in Chinese) to extend policies aimed at allowing some small businesses to delay repayment of loans and offering cheap funds to financial institutions for them to boost credit to such enterprises.

Oversight of fintech companies will also be stepped up in 2021, the PBOC said, reflecting the central government’s concerns about the potential financial risks stemming from their activities, the abuse of their market power, and the negative impact on consumers.

Over the past few months, fintech giants, especially Ant Group Co. Ltd., have been facing tougher supervision as regulators warned about systemic risks posed by their aggressive expansion and decided to treat them more like traditional financial institutions rather than tech companies. In November, Ant Group’s IPO, which would have been the world’s largest on record, was suspended by regulators. The company has since been told by financial regulators to return to its roots as a payment services provider and to overhaul its lending, insurance and wealth management businesses.

The central bank also vowed to implement the Politburo’s call to fight monopolies and prevent the disorderly expansion of capital (防止资本无序扩张).

Contact reporter Guo Yingzhe (yingzheguo@caixin.com) and editor Nerys Avery (nerysavery@caixin.com)

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