China refines financial stability law to strengthen risk prevention

FILE PHOTO: Chinese officials and delegates applaud at the closing session of the National People's Congress (NPC) at the Great Hall of the People in Beijing, China March 11, 2024. REUTERS/Florence Lo/File Photo

BEIJING (Reuters) - China's new financial stability law draft bill improved provisions on financial risks prevention and control, according to draft revisions released on Monday.

Revisions to the draft bill underwent the 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 the responsibilities of preventing, defusing and handling financial risks, and should prevent and investigate illegal financial activities.

Establishment of a financial institution and engagement in financial business activities must be approved by government financial departments, it said.

The draft also removed provisions about responsibilities of the Financial Stability and Development Committee (FSDC), under the State Council. It said a central financial work leading body, which it did not identify, would be responsible for decision-making, top-level design, supervision of 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 reorganisation 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 said a financial stability fund would be set up to tackle major systemic risks.

The latest revisions also follow the "spirit" of a key gathering Central Financial Work Conference in October, which said China will comprehensively strengthen financial supervision and resolve financial risks, according to the NPC post.

(Reporting by Ziyi Tang and Ryan Woo; Editing by Lincoln Feast.)