begin quote from:

China hints at bankruptcy rules for finance sector

South China Morning Post

- ‎2 hours ago‎

Mainland authorities have signalled they are ready to accept the threat of volatility from financial institutions going bankrupt, with official calls for an orderly way to let failed players go bust.

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China hints at bankruptcy rules for finance sector

PUBLISHED : Monday, 13 June, 2016, 2:01am

UPDATED : Monday, 13 June, 2016, 2:00am

Participants attend the opening ceremony of the Lujiazui Forum in Shanghai. Photo: Xinhua

Maggie Zhang

Mainland authorities have signalled they are ready to accept the threat of volatility from financial institutions going bankrupt, with official calls for an orderly way to let failed players go bust.

Central bank deputy governor Zhang Tao said on Sunday that ensuring the stability of the financial sector did not mean protecting every institution against failure.

“Those institutions that need to be restructured should be restructured, and those doomed to go bankrupt should do so under the discipline of market forces,” Zhang said at the Lujiazui Forum in Shanghai.

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“Any industry that does not have a way to elevate winners and eliminate losers can’t develop in a healthy and sustainable way.”

Beijing is trying to shake the long-held public perception that financial institutions like banks and insurers are backed and endorsed by the state and therefore unlikely to go bust.

There will be no dead angle or blank places for regulatory measures

Central bank deputy governor Zhang Tao

As part of those efforts, Beijing had to launch a deposit insurance programme, a credit information system and exit mechanism for financial institutions, Zhang said.

The long-awaited deposit insurance policy was put into place in May 2015, with compensation of up to 500,000 yuan (HK$592,000) for each depositor.

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Data from the People’s Bank of China indicated earlier that the programme could cover 99.63 per cent of depositors.

The insurance scheme is run as pre-emptive guarantee for savers as banks follow the commercial forces of a market economy.

Zhang also said the risks exposed by the mainland’s booming internet finance sector should not be neglected.

“There will be no dead angle or blank places for regulatory measures,” he said.

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Beijing has tightened scrutiny of illegal fundraising amid concerns about social stability raised by a raft of high-profile fraud schemes, disguised as internet finance programmes.

At a meeting of 14 ministries and regulators in April, Beijing said the number of illegal fundraising cases jumped 71 per cent last year.

Cheats have taken advantage of the internet finance boom as regulators have struggled to catch up.

Ezubao, once the country’s biggest peer-to-peer online lending firms, managed to amass over 58.2 billion yuan from more than 900,000 investors in less than two years before it was caught up in a crackdown on fraud.

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But Zhang also admitted that small business was underserved by traditional financial players, leaving room for non-traditional lenders, such as internet financiers, to flourish.

Zhang also called for easier market access for different kinds of financial institutions as part of the country’s wider supply-side reforms.

Also at the forum yesterday, Guo Ligen, vice-chairman of the China Banking Regulatory Commission,said inclusive finance – which offers universal access to funding – was not for all players.

“The finance industry is a high-risk sector, and inclusive finance is not for all players,” Guo said. “What’s more, it’s not a place for financial intermediaries to engage in the financing business, and not a place for people take part in illegal fundraising or financial fraud.”