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Decentralization of the Regulation of China’s Financial Markets

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The Regulation of Securities Markets in China

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Abstract

This chapter discusses the decentralization of China’s securities markets and the regulatory roles and ambitions of local governments. Multi-level financial market regulation is an intrinsic part of the Chinese regulatory system, and the chapter looks at the effects and implications of decentralization of financial markets regulation. The powers of local governments to regulate credit companies, financing guarantor companies, private capital management companies, and regional markets are reviewed, as are the economic and political tensions between local and central government objectives, and the possible distorting effects of local government competition for financial services business and private local investment.

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Notes

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  54. 54.

    Sometimes they are also called Bureau of Finance: for example, Beijing Bureau of Finance, but all will be referred to here as Office of Finance.

  55. 55.

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    Zhejiang Government, Provincial government departments, http://www.zjzwfw.gov.cn/col/col72469/index.html accessed on 5/01/2017.

  63. 63.

    See the analysis below in relation to regulated entities (e.g. credit companies).

  64. 64.

    For detailed analysis of paternalistic regulation, see He Weiping, Paternalistic regulation in China’s banking sector, The Chinese Journal of Comparative Law (2013). http://cjcl.oxfordjournals.org/content/early/2013/08/09/cjcl.cxt008.full.pdf+html accessed on 5/01/2017.

  65. 65.

    Zhejiang Government, Provincial government departments, http://www.zjzwfw.gov.cn/col/col72469/index.html accessed on 3/04/2016.

  66. 66.

    Zhejiang Government, Provincial government departments, http://www.zjzwfw.gov.cn/col/col72469/index.html accessed on 3/04/2016; see also, ‘Guidelines on Pilot Credit Companies’ (2008), and ‘Rules on Financing Guarantee Companies’ (2010).

  67. 67.

    Zhejiang Government, Zhejiang Province Financial Industry Planning (2015).

  68. 68.

    This was reversed in 2016—Shanghai SASAC has taken back the right to regulate Shanghai government-owned financial institutions: http://finance.ifeng.com/a/20160608/14472973_0.shtml, accessed on 5/01/2017.

  69. 69.

    Beijing Government, Beijing Government Office of Finance Powers, http://www.bjjrj.gov.cn/zqgdxx/c130-a1158.html accessed on 5/01/2017.

  70. 70.

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    http://www.sme2000.com.cn/disquisition/index.asp

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    Franklin Allen , Jun Qian , and Meijun Qian , ‘Law, Finance, and Economic Growth in China’, Journal of Financial Economics (2005) 77, 99. Among informal finance employed by the private sector to fund their businesses, some lending borders on being legally prohibited, such as lending by loan sharks who charge interest rates above the legally prescribed rates, and by private money houses who illegally solicit funds from the public. See Guo Wu Yuan Ban Gong Ting Guan Yu Yi Fa Cheng Chu Fei Fa Ji Zi You Guan Wen Ti de Tong Zhi [Notice on Punishing Illegal Fund-raising] 2007.

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    Niu Tai Shen , ‘Cong Wu Ying An Kan Ming Jian Rong Zi Fa Lu Kun Ju [Case of Wu Ying: the Conundrum of Informal Financing]’ (2011) 10 Jing Ji [Economy] 57.

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    CBRC, CBRC and PBoC on Micro-Credit Companies (2008), http://www.gov.cn/gzdt/2008-05/08/content_965058.htm accessed on 5/01/2017.

  78. 78.

    LLCs do not divide their capital into equal units or shares—an investor in an LLC can limit his liability to his capital contribution; A joint stock limited company is the functional equivalent of a publicly held corporation in the United States and a public company under Australian law.

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    CBRC, CBRC and PBoC on Micro-Credit Companies (2008), http://www.gov.cn/gzdt/2008-05/08/content_965058.htm accessed on 5/01/2017.

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    Huang Jianing , Sustainable Development of Credit Companies, Law Research, 2010, 9, p. 72.

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    Zhejiang Government , Suggestions on Promoting Micro-credit Companies (2015), http://www.zj.gov.cn/art/2015/11/5/art_17592_248421.html accessed on 5/01/2017.

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    Zhejiang Government , Notice on Rules of Change of Shareholding in micro-credit companies (2014), http://www.zj.gov.cn/art/2014/7/9/art_17592_166683.html accessed on 5/01/2017.

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    CBRC, CBRC and PBoC on Micro-Credit Companies (2008), http://www.gov.cn/gzdt/2008-05/08/content_965058.htm accessed on 5/01/2017.

  85. 85.

    Hunan Province, Hunan Micro-credit Companies Supervision (2009), http://www.hunan.gov.cn/2015xxgk/fz/zfwj/szfzsjg_19847/szfjrgzbgs_19932/gfxwj_19933/200910/t20091019_241271.html accessed on 5/02/2017.

  86. 86.

    Guan Yu Xiao E Dai Kuan Gong Si Shi Dian de Zhi Dao Yi Jian [Guidance on Trial of Micro-credit Companies] 2008.

  87. 87.

    For example, Fuyang local government offered 0.5% of the value of the loans extended by credit companies if the total loan amount was below RMB 200 million, and 0.8% for anything above RMB 200 million. Fuyang Government, Government Subsidy on mic-credit companies 2016, http://www.fuyang.gov.cn/gggs01/336685.jhtml accessed 19/01/2017.

  88. 88.

    Zhejiang Government , Suggestions on Reforming micro-credit companies (2011), http://www.mcuzj.com/article.php?id=129 accessed on 6/01/2017.

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  90. 90.

    Jiangxi Government , Suggestions on Promoting Micro-credit Companies 2015.

  91. 91.

    State Council, Statistics on Micro-credit Companies 2015, http://www.gov.cn/xinwen/2016-01/26/5036428/files/302e3fdf623a439192e3341e083a80dc.pdf accessed on 6/01/2017.

  92. 92.

    State Council, Rules on Financing Guarantor Companies for Public Consultation (2015) Section 2.

  93. 93.

    State Council, Encouraging and Supporting the Development of Small and Medium Companies 2000.

  94. 94.

    State Council, Suggestions on Promoting the Development of the Capital Markets (2008).

  95. 95.

    Ma Yanxin , New and Special Issues on Administrative Law, Administrative Law Research, 2017, 1 p. 50.

  96. 96.

    State Council, Notice on Clarifying Financing Guarantee Business Supervision (2009), http://www.gov.cn/zwgk/2009-02/09/content_1225340.htm accessed on 13/03/2017.

  97. 97.

    In 2015, they also published Regulation on Financing Guarantor Companies for public consultation.

  98. 98.

    Shandong Government, Shandong Province Regulation of Financing Guarantor Companies (Pilot) 2010, Section 13.

  99. 99.

    Shandong Government, Shandong Province Regulation of Financing Guarantor Companies (Pilot) 2010, Section 15.

  100. 100.

    Shandong Government, Shandong Province Regulation of Financing Guarantor Companies (Pilot) 2010, Section 19.

  101. 101.

    Jiangsu Government, Notice on Clarifying Financing Guarantee Business Supervision (2009), http://www.jiangsu.gov.cn/jsgov/tj/bgt/201311/t20131102404693.html?keywords= accessed on 13/03/2017.

  102. 102.

    In 2012, the Zhejiang Economic and Information Commission published its Five Year Development Plan for the Financing Guarantor Industry, and in 2014 its Notice on Regulating of Small and Medium Financing Guarantor Industry, and Strengthen Regulation of Financing Guarantor Companies.

  103. 103.

    Ministry of Finance, Notice on Strengthening Support for Small and Medium Credit Guarantee Companies (2003).

  104. 104.

    Li Keqiang , Developing Financing Guarantee Companies Supported by the Government http://finance.ifeng.com/a/20141219/13368075_0.shtml accessed 5/01/2017.

  105. 105.

    State Council, Promoting the Development of Financing Guarantee Sector (2015) http://www.gov.cn/zhengce/content/2015-08/13/content_10082.htm accessed on 5/01/2017.

  106. 106.

    Ministry of Finance, National Agricultural Credit Guarantee Company Founded in Beijing http://www.mof.gov.cn/zhengwuxinxi/caizhengxinwen/201605/t20160519_1996788.htm 6/01/2017.

  107. 107.

    Ministry of Finance, National Agricultural Credit Guarantee Company Founded in Beijing http://www.mof.gov.cn/zhengwuxinxi/caizhengxinwen/201605/t20160519_1996788.htm 6/01/2017.

  108. 108.

    Ministry of Finance, National Agricultural Credit Guarantee Company Founded in Beijing http://www.mof.gov.cn/zhengwuxinxi/caizhengxinwen/201605/t20160519_1996788.htm 6/01/2017.

  109. 109.

    For example, the Guangdong re-guarantor company, or Shanxi Guoxin re-guarantor company.

  110. 110.

    Zhejiang Jingyuxin Financing Guarantor Company, http://www.zjjyx.cn/AboutUs.aspx?id=7&Artid=1 accessed on 6/01/2017.

  111. 111.

    Zhejiang Government, First National Financing Guarantee Company Approved, http://www.zjjxw.gov.cn/art/2013/10/18/art_1087015_1149859.html accessed on 6/01/2017.

  112. 112.

    Zhejiang Government, First National Financing Guarantee Company Approved, http://www.zjjxw.gov.cn/art/2013/10/18/art_1087015_1149859.html accessed on 6/01/2017.

  113. 113.

    Zhejiang Government, Statistics on Financing Guarantee Sector First half of 2016, http://www.zjjxw.gov.cn/art/2016/8/12/art_1086790_2065037.html accessed on 6/01/2017.

  114. 114.

    State Council, Forming Financing Guarantor Business Regulatory Inter-ministerial Joint Committee 2009.

  115. 115.

    Liu Peipei , Creditability System in Bond Market, Securities Law Forum, 2016, 1, p. 240.

  116. 116.

    Zhongtou Consultancy, Financing Guarantee Sector Improving, 20/03/2014.

  117. 117.

    Wang Minghua , Wang Yiyan , Rules in relation to Secured Property, People’s Judiciary, 2014, 19, p. 91.

  118. 118.

    Liu Peipei , Creditability System in Bond Market, Securities Law Forum, 2016, 1, p. 240.

  119. 119.

    Liu Zimin , Causes and Legal Responses to Difficulties of Informal Financing, Finance Law Forum, 2016, 1, p. 20.

  120. 120.

    Wenzhou Government, How do Private capital management companies Work? http://www.wenzhou.gov.cn/art/2012/5/4/art_6000_216920.html accessed on 6/04/2016.

  121. 121.

    Qingdao Government, Suggestions on Further Development Private Financing Companies 2013.

  122. 122.

    Hu Xin , Pioneers: Private capital management company Month old, Zhejiang Merchants, 2012, 9, p. 62. For further discussion about equity investment companies, see Chap. 3.

  123. 123.

    Miao Yushu , Private capital management companies Legal Rules, Yunan University Review, 2014, 2, p. 91.

  124. 124.

    Qingdao Government, Suggestion on Developing Private capital management companies (2014) http://www.qingdao.gov.cn/n172/n68422/n1527/n9725/140804170219455171.html accessed on 6/04/2016.

  125. 125.

    For example, Wenzhou government issued Guidelines on Private Capital Management Companies (Pilot) (2013).

  126. 126.

    Shandong government, Suggestions on Further Development Private Financing Companies (2013).

  127. 127.

    Qunzhou government, Guidelines on supervising private capital management companies etc. 2015.

  128. 128.

    Wenzhou Government issued Guidelines on Private capital management companies (Pilot) (2013).

  129. 129.

    Survey interviewee.

  130. 130.

    Wenzhou government issued Guidelines on Private Capital Management Companies (Pilot) (2013).

  131. 131.

    Bond investment refers to investing in publically issued government bonds and corporate bonds. Disposition of non-performing assets refers to the purchase and conversion of non-performing assets. Shandong government, Private Capital Management Companies Business Innovation (2016).

  132. 132.

    Shandong government, Private capital management companies Business Innovation 2016, s 35.

  133. 133.

    Qunzhou government, Guidelines on supervising private capital management companies etc. 2015.

  134. 134.

    Development Research Centre of the State Council, Research on Private capital management companies, http://www.drc.gov.cn/n/20150427/1-224-2886956.htm accessed on 17/03/2017.

  135. 135.

    Development Research Centre of the State Council, Research on Private capital management companies, http://www.drc.gov.cn/n/20150427/1-224-2886956.htm accessed on 17/03/2017.

  136. 136.

    Qingdao Government, Statistics on Private capital management companies 2015, http://jrb.qingdao.gov.cn/n26118648/n28412471/n28412486/160203115533011030.html accessed on 17/03/2017.

  137. 137.

    Qingdao government, Private capital management companies in Qingdao 2015, http://jrb.qingdao.gov.cn/n26118648/n28412471/n28412531/160726165139720082.html accessed on 18/04/2017.

  138. 138.

    Qingdao government, Private capital management companies in Qingdao 2015, http://jrb.qingdao.gov.cn/n26118648/n28412471/n28412531/160726165139720082.html accessed on 18/04/2017.

  139. 139.

    It started off as a regional and over-the-counter market. In 2005, as a trial, the State Council approved the establishment of the Zhongguancun Share Exchange in response to the proposal by the Beijing government. This was an exchange only for companies registered in the Zhongguancun National Innovation Demonstration Zone.

  140. 140.

    Tianjin Equity Exchange, Introduction of the Exchange, http://www.tjsoc.com/article/index/category/71.html accessed on 20/01/2017.

  141. 141.

    The State Council’s Decision on the Clean-Up of Various Securities Markets and Managing Financial Risk (2011) and Opinions on Implementation of the Clean-Up of Various Securities Markets (2012).

  142. 142.

    While available bank credit has been diverted to SOEs, the private sector, particularly small businesses, has experienced a credit contraction. In accordance with the CBRC’s data, in 2009 only 22.2% of all corporate lending by banking institutions was extended to small businesses. For a detailed analysis, see He Weiping, Banking Regulation in China.

  143. 143.

    China Securities Regulatory Commission, China Securities Regulatory Commission Annual Report 2014, (2014) p. 40.

  144. 144.

    CSRC, Regional equity exchanges Supervisory Rules (Pilot) for Public Consultation (2015).

  145. 145.

    Central University of Finance and Economics, Research on Multi-level Capital Markets and Securities Exchanges, Securities Law Forum, 2014, 1, p. 285.

  146. 146.

    The inter-ministerial joint committee is led by the CSRC, and comprises representatives from all relevant provincial governments and other national government departments. Among other things, it formulates regulations, and coordinates, supervises and guides the work of provincial governments: http://www.gov.cn/zwgk/2012-01/12/content_2042870.htm, accessed on 31/01/2017.

  147. 147.

    Zhejiang Equity Exchange Management Rules (Pilot) (2013) section 6.

  148. 148.

    Zhejiang Equity Exchange Management Rules (Pilot) (2013).

  149. 149.

    Zhejiang Equity Exchange Trading Rules (Pilot) (2013).

  150. 150.

    Zhejiang Equity Exchange Management Rules (Pilot) (2013), S 6.

  151. 151.

    Zhejiang Equity Exchange, Investor Suitability Management, http://www.zjex.com.cn/view/default.php?func=listAll&catalog=0701 accessed on 6/04/2016.

  152. 152.

    It is a wholly owned state company: see National Enterprise Credit Information System.

  153. 153.

    Its majority shareholder (with 53.58% of shares) is the Shanghai Zhangjiang Group which is state-owned company. See Shanghai Zhangjiang High Tech Zone Development Company Annual Report, 2014, p. 40.

  154. 154.

    It is a Shanghai government affiliate: see http://www.suaee.com/suaee/portal/aboutus/aboutus.jsp, accessed 22/12/2015.

  155. 155.

    Zhejiang Property & Stock Exchange, Introduction, http://www.zjpse.com/article/gywm/ accessed on 3/01/2017.

  156. 156.

    Zhejiang Property & Stock Exchange, Background, http://www.zjfae.com/view/default.php?func=detail&catalog=1001 accessed on 3/01/2017.

  157. 157.

    Mixed ownership projects are those that have government as well as private funding.

  158. 158.

    Zhejiang Property & Stock Exchange, Zhejiang Province Government SASAC Mixed Ownership Projects Platform, http://www.zjpse.com/article/qkjj/ accessed on 3/01/2017.

  159. 159.

    CSRC, Non-listed Public Companies Regulations (2012).

  160. 160.

    State Council, Clearing Various Exchanges (2012) http://www.gov.cn/zwgk/2012-07/20/content_2187828.htm accessed on 5/04/2017.

  161. 161.

    CSRC, Rules on Securities Companies Participating in Regional Equity Exchanges (2013), section 3.

  162. 162.

    In a single auction (as opposed to a double auction), either the buyer posts a bid price which is the price he/she is willing to pay, or the seller posts an asking price, which is the price he/she is willing to accept, but not both.

  163. 163.

    Survey interviewee.

  164. 164.

    For more information on capital market-based and credit-based financial systems, see John Zysman, Government, Markets, and Growth: Financial Systems and the Politics of Industrial Change (Cornell University Press, 1983).

  165. 165.

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    See the detailed discussion in Chap. 6.

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    He Weiping

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Weiping, H. (2018). Decentralization of the Regulation of China’s Financial Markets. In: The Regulation of Securities Markets in China. Palgrave Macmillan, New York. https://doi.org/10.1057/978-1-137-56742-0_7

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