July 1 2024: China’s new financial stability law draft bill has improved provisions for preventing and controlling financial risks, according to draft revisions released on Monday.
Revisions to the draft bill underwent a second round of review by China’s top legislature, the National People’s Congress (NPC) Standing Committee, and are open for public feedback until July 27th, according to a post on the NPC website.
The bill aims to establish a comprehensive cross-agency mechanism for risk detection and mitigation within the financial system as the country grapples with a prolonged real estate crisis and vulnerabilities in smaller banks.
The top legislature usually passes bills after three rounds of reviews.
The latest revisions stipulate that financial regulators and local governments should fulfill their responsibilities in preventing, defusing, and handling financial risks, and should prevent and investigate illegal financial activities.
Establishing a financial institution and engaging in financial business activities must be approved by government financial departments, it said.
The draft also removed provisions about the responsibilities of the Financial Stability and Development Committee (FSDC) under the State Council. Instead, a central financial work leading body, which it did not identify, would be responsible for decision-making, top-level design, and supervision of the implementation of financial stability and development policies.
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 loses steam amid a sluggish property market and increasing financial stress on already heavily indebted local governments. The long-awaited bill underwent its first review in December 2022 and mentioned a financial stability fund would be set up to tackle major systemic risks.
The latest revisions also follow the “spirit” of a key gathering at the Central Financial Work Conference in October, which stated that China will comprehensively strengthen financial supervision and resolve financial risks, according to the NPC post.
