Why Has Basel III Become Hard Law for China? The Domestic Political Economy of International Financial Law

Abstract

China’s enthusiasm for domestic implementation of Basel III presents an intriguing case for the comparative literature on financial regulation, in particular, the “soft” nature of international financial law. This research argues that China’s adoption of Basel III has been driven, in part, the “private” institutional interests of the CBRC. It demonstrates that the CBRC’s regulatory mandates necessitate efforts to put in place and enforce strict capital standards and rules that ran counter to the powerful domestic vested interests, inter alia, the regulated Chinese banks, and the all-mighty central and local government agencies, as well as state-owned enterprises, that own and control these banks. As an adaptive strategy, the CBRC has relentlessly pushed for the adoption of capital standards and rules it favors in the Basel III decision-making process, so as to lend itself the authority and legitimacy necessary to enact and enforce its favored rules against regulated Chinese banks in the name of complying with China’s international commitments under Basel III.

Keywords: International Financial Law, China, Basel III