By Shu Zhang and Matthew Miller
BEIJING (Reuters) - Guo Shuqing, who is stepping down as governor of Shandong province to take control of China's banking regulator, returns to Beijing at a decisive moment for the country's financial system following years of breakneck economic growth.
The immediate challenge for the new chairman of the ChinaBanking Regulatory Commission (CRBC) is formidable - Guo must vigorously address troubled lending in the country's 232 trillion yuan ($34 trillion) banking sector and implement tougher measures to control lightly regulated shadow banking activities.
For Guo, highly regarded as one of China's most experienced financial services professionals, returning to Beijing follows an accomplished career including appointments as chairman of China Construction Bank Corp <601939.SS><0939.HK>, the head of the China Securities Regulatory Commission, and most recently as a provincial governor.
Guo is considered by many as a passionate reformist, drawing up more than 70 new policies during his 18 months as chief stock market regulator from 2011 to 2013.
He tried to revive a stagnant stock market, boosting participation by foreign investors while campaigning against widespread insider trading, poor information disclosure and weak corporate governance.
He also advocated reform of the initial public offerings system and promoted the delisting of loss-making firms.
"Guo's appointment to CBRC brings him back to his area of core expertise: banking," said James Stent, a former independent director at two Chinese banks and author of China's BankingTransformation.
"CBRC is a big, complicated organization. You have to be a competent manager. Guo Shuqing has proven in spades he's capable of doing the job."
Guo, a philosophy major and a visiting scholar at Oxford University, is a native of China's Inner Mongolia region and is a fluent English speaker. Since 2001, he also has served as a deputy central bank governor and as a top foreign exchange regulator.
Like central bank governor Zhou Xiaochuan and former finance minister Lou Jiwei, Guo is widely respected as a reform-minded policymaker.
He was appointed to run CBRC to replace Shang Fulin, who has reached the official retirement age of 65.
BAD LOANS, SHADOW BANKING
Deleveraging and containing risk have been identified as top priorities for the current government, as China's top leaders prepare to gather at the twice-a-decade leadership reshuffle of the ruling Communist Party this autumn.
China's banking sector is dominated by state-owned lenders, which are responsible for supporting political and economic priorities of central and provincial governments.
Guo, 60, also must wrestle with the thorny problems associated with helping regulate China's fast-growing online finance industry, which has become a hothouse for both innovation and fraud.
A prolific author with more than 300 research papers and 16 books to his name, Guo inherits a banking sector that has expanded swiftly, fueled by the country's rapid credit growth.
Banking assets over the last five years have more than doubled, helping to push the volume of non-performing loans at Chinese commercial banks to 1.51 trillion yuan by the end of last year, the highest since 2005.
China's shadow banking system, comprising a range of opaque and lightly-regulated financial products, also has grown rapidly under the guise of financial innovation.
Shadow banking's entanglement with traditional financial institutions, especially more vulnerable small and mid-sized banks, has raised concerns about potential systemic risks.
Shang, who led the CBRC from 2011 to 2016, faced criticism for not being firm enough on those activities.
"Shang has not been a tough regulator in keeping things under control," said Fraser Howie, an independent analyst and author of Red Capitalism. "Banking is far more complicated and opaque than it was before."
"SERIOUS, RESPECTED" REGULATION
Guo's needs to come out with "serious and respected" regulation addressing shadow banking products, Howie said.
Guo will work closely with China's powerful central bank, which is tightening oversight of the surging asset management industry that has drawn the eye of investors seeking high yields and quick profits.
Before joining the securities regulator, Guo steered China Construction Bank Corp to its successful initial share sale, which raised $8 billion.
Guo will need to navigate the CBRC through the financial regulatory system shake-ups in the coming months and years. Market speculation about unifying banking, insurance, securities regulators under the leadership of the central bank has been rampant since China's stock market crash in 2015.
"Don't take too much risk. But not too little either. If you don't take any risk how can you make any money," Guo told Reuters in an interview in 2010.
(Refiles to change "degenerating" to "develeraging" in paragraph 12)
(Additional reporting by Benjamin Lim in BEIJING; Additional writing by Ryan Woo; Editing by Lincoln Feast)