China to Create Single-Regulator After Market Crash

China is assessing option to create one regulatory commission to supervise its financial service industry. The super-commission will supervise banking, insurance and securities sector in China.

According to Reuters, the market crash that started in June was blamed in part on poor inter-agency coordination. The 40% market crash of Chinese Shanghai Shenzen 300 Index (CSI300) is embarrassing Chinese government despite its effort in maintaining economic growth and stability. Reuters also reported that its source in China said that Beijing had already begun exploring a replacement for XIao Gang, current head of China Securities Regulatory Commission (CSRC). As for now, Chinese financial service industry was supervised by three separate regulatory bodies: CSRC, the China Banking Regulatory Commission (CBRC) and the China Insurance Regulatory Commission (CIRC).

The 2015 Chinese stock market crash began on June when one-third of A-listed share in Shanghai Stock Market lost within one month. The crash was initiated when stock market bubble started to burst, after investors, mostly individuals inflated the stock market a year earlier. Within three weeks, market plunged by 30%. More than half of companies listed in Shanghai stock market was filing for trading halt of their stock, in hope to prevent further losses. Furthermore, around 1,3000 firms operated in Shanghai stock market also suspended the stock trading during the market crash. China is looking for the most effective measure to prevent such incident to happen again.

Channel News Asia quoted Reuters, reporting that Beijing is looking at Britain's regulatory set-up as a model. In Britain, Bank of England hold more control over financial system in a reformed regulation after global financial crisis. Currently, China's three regulators operate independently, each reporting to the State Council, or cabinet. Multiple supervisory and regulatory bodies will as in China has potential of overlapping. As Zhou Hao, economist at Commerzbank in Singapore said, "It's quite difficult to differentiate between a securities company versus an insurance company versus an asset management company, yet they are under different regulatory umbrellas and belong to different regulators. This leads to a lot of overlap,"

However, Bloomberg reported that there is one slice of Chinese market that thrives after the crash. That are ptions, introduced in China just nine months ago. Options are now thriving as traders use the derivatives as a substitute for futures and short sales. The emergence of this new market is surely increasing the need for single regulatory body.

China's reformed plan to introduce a single commission, as a regulator and supervisor of its financial service industry is expected to provide more control over the industry. However, Chinese government has not made any decision yet.