Financial Reform, With Chinese Characteristics

It is unclear when the draft rules for asset management products will go into effect. In a move to soften potential push back from banks and other investors, authorities in February said the rules would apply only to new products, not existing ones. Even so, to the extent that effective enforcement might threaten banks' bottom lines, implementation likely will not begin until after the political sensitive 19th Party Congress, set for this October, and even then, it likely will be gradual. Further major moves toward regulatory integration during the remainder of 2017 are unlikely.

Finally, it remains unclear how the above facets of Chinese financial reform will relate to the more common meaning of reform: liberalization. Throughout the past decade, China has used this lack of clarity to mobilize support from international observers and markets for initiatives that did not clearly contribute to liberalization. Indeed, some "reforms" have pushed in the opposite direction, toward consolidation of state and party control over key pillars of the country's financial system. The current wave of financial reform, particularly efforts to streamline and unify China's regulatory framework, may pave the way for greater liberalization ahead. But if past is precedent, that outcome is far from guaranteed.

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