China’s draft financial stability law has improved provisions on financial risk prevention and control, according to revisions released Monday.
The revisions to the bill have undergone a second round of review by the Standing Committee of the National People’s Congress (NPC), China’s top legislature, and are open for public comment until July 27, according to a post on the NPC website.
The bill aims to establish a comprehensive inter-agency mechanism for the detection and mitigation of risks within the financial system, as the country faces a prolonged real estate crisis and vulnerabilities in small banks.
The top legislative body typically adopts bills after three rounds of review.
The latest revisions stipulate that financial regulators and local governments must fulfill their responsibilities in preventing, defusing and managing financial risks, and must prevent and investigate illegal financial activities.
The establishment of a financial institution and engagement in financial activities must be approved by the government’s financial departments.
The draft also removed provisions relating to the responsibilities of the Financial Stability and Development Committee (FSDC), which reports to the State Council. He indicated that a central body governing financial activities, which he did not identify, would be responsible for decision-making, design at the highest level, supervision of the implementation of financial policies financial stability and development.
The FSDC was dissolved and its functions transferred to the new Central Financial Commission (CFC) in March 2023 as part of a broader reorganization of government and party institutions.
China’s financial system faces multiple challenges as the country’s economic recovery falters against a backdrop of a sluggish real estate market and growing financial strain on already heavily indebted local governments.
The long-awaited bill was the subject of a first examination in December 2022 and provides for the creation of a financial stability fund to address major systemic risks.
The latest revisions also follow the “spirit” of a key meeting of the Central Financial Work Conference in October, which said China would comprehensively strengthen financial supervision and address financial risks, according to the NPC article. (Reporting by Ziyi Tang and Ryan Woo; Writing by Lincoln Feast)
