D. the future direction of regulation on Islamic Finance in China
There are several reasons to believe that Islamic Finance will continue to develop in China in the near future. The first reason is that after the financial crisis in United States in 2008, the Islamic Finance outperformed the conventional speculation based financial model because of its stability and financial security, and therefore attracted the attentions of investors, including both Muslims and non-Muslim investors[1]. The second reason is that after the September 11 attacks in 2001, the Islamic Finance began to the expand from Middle East to Asia, because on one hand, due to the combined effect of the reinforced regulation of the Islamic Finance in United States and Europe and the long-term economic depression experienced by these countries, the profitability of Islamic Finance in western countries was reduced. On the other hand, many Asia developing countries began to attract Islamic Finance into their countries. Therefore, the Muslim investors, mainly from Middle East countries with rich oil dollar, become more willing to peruse investment opportunities in Asia countries[2]. The third reason is that PRC government’s strategy of ‘One belt one road’ involved inevitable investment and corporation between China and Muslim countries, therefore, the issue of Islamic Finance and the regulation on it cannot be avoided by China and its investors.
There are two groups of academic opinions regarding to the future directions of the Islamic Finance regulation in China. The first group supports to set up a more detailed regulation system on Islamic Finance to make up the deficiency of the regulation of Islamic Finance in current China. Wang Yongbao further pointed that the disappointed point of the experimental operation of Islamic Finance in mainland China is the lack of similar regulatory framework[3]. Zhang Xiaofeng also supports to set up a set of rules to regulate the Islamic Financial market in China, based on the Memorandums of Understanding between PRC government and international Islamic Financial market[4]. Zhang Yongli and Wang Bo propose that under the background the ‘One belt one road’, it’s imperative to establish Islamic Finance regulation scheme in China, including national Islamic regulation and dispute resolution authority, legislation of relevant law and dispute resolution legal system and the experimental Islamic court for the cases related to the disputes of Islamic Finance[5].
The problems of all these optimistic proposals is that the proposed regulation scheme is similar to that in the experimental Islamic division of Ningxia Bank, which means that the focus of all these proposals is to revive the binary regulation framework which has already been disapproved by Chinese government in 2012. Just as analyzed above regarding this regulation scheme, its inherent risk of legal pluralism is a formidable hurdle which is nearly impossible to cross in the near future, considering the complex political and religious environment in mainland China.
On the other hand, anther voice is to use the conventional regulation framework to manage the Islamic Finance, without additional amendments, which equates with the non-acknowledgment of the official status of Islamic Finance. Mei Xinyu states that there is strong potential political and religious risk in Islamic Finance, because, unlike conventional financial mode, it is a religion oriented financial model, and the Islamic doctrine openly discriminate non-Muslim people, and therefore, the Islamic Finance complying with the discriminating religious doctrine would be in conflict with the constitutional spirit that everybody is equal before the law. For this reason, Mei Xinyu proposes to regulate the financial activity in Muslim population with the same set of national wide regulation framework instead of providing them with a separate set of Sharia-compliant regulation framework.[6] Compared with the enthusiastic opinion supporting the binary regulation framework, Mei’s opinion jumps to another extremity to force the Muslim community to accept the conventional financial regulation model, which is inconsistent with the requirement of Sharia law. It can be inferred with common sense that few Muslim people would accept this regulation on their financial activities and the most possible result is that the Islamic Finance will continue to evolve as underground financial activities in China to avoid to be regulated by conventional regulation framework. Therefore, this proposal will not only fail to solve the problem but also leave the problem unregulated before it evolved into a more serious social issue.
Until now, there is still no promising and practical proposal raised to solve this vexing issue. It is surprising that the neither PRC government nor the scholars manage to investigate the applicability of the regulation model adopted by Singapore and Hong Kong. Compared with the more risky binary model and meaningless de-regulation model, the adjusted unified regulation framework is the most practical one regulator can image currently. However, it is still not without risk and uncertainty. One similarity between Hong Kong and Singapore, compared with United Kingdom and mainland China, is that they are both a small political and economic units. They are also common law jurisdictions and therefore the legal system is more flexible than that in civil law jurisdictions. The third similarity is that they both endeavor to be a regional Islamic Finance centre and therefore has strong motivation to attract the inflow of investment from Muslim world.
However, mainland China does not share the three features of Hong Kong and Singapore. More specifically speaking, mainland China is a big jurisdiction with vast territory, on which lived a diverse range of ethnic groups. China is also a civil law jurisdiction and furthermore, it is still not clear whether PRC China wishes to be a future hub for Islamic Finance under the ‘one belt one road’ strategy, except some enthusiastic regions[7] and scholars. Another issue needed to be taken into consideration is the large size of Muslim community in China. Both Hong Kong and Singapore has a small group of Muslim people, therefore, there is little potential social and political risk for the official acknowledgment of the Islamic Finance and relevant adjustment of current regulation framework to make it compatible with some principles of Sharia law. However, the large amount of Muslim people in mainland China may cause different outcome if PRC government issue official acknowledgment of the Islamic Finance and make official regulation framework on it. For this reason, it is still too early to allege that the regulation model successfully implemented in Hong Kong and Singapore will also be successful in China mainland.
E. Conclusion
In Hong Kong, to put Islamic Finance under an official regulation framework is easily achieved and has been achieved. By contrast, there is still not a clear and effective regulation scheme on Islamic Finance in mainland China due the complex political and religious issues related to the Islamic Finance. Even though mainland China government currently chooses a de-regulation attitude and shuts its eyes on the existence of Islamic Financial activities, it still needs to consider the issue sooner or later in the future. A more thorough and considerate balance between the enormous need for a flourishing Islamic financial market and the consideration for preventing to bread legal pluralism and further complicated political and religious problems is needed to be conducted by the decision maker of PRC government.
For this reason, a tentative conclusion is that it is still difficult for PRC government to issue an official regulation scheme on the Islamic Finance currently operated in China, while Hong Kong will continue to operate as an independent hub for Islamic Finance under current unified regulation framework. Compared with the proposals and the regulatory models mentioned above, the unified model to regulate Islamic Finance under existing legal system, only with minor adjustments of existing law, maybe a relatively more plausible and practical choice. And the success of Singapore and Hong Kong has proved its practicability. But this does not mean that the replication of the unified model in mainland China will be also successful. Both of Singapore and Hong Kong are two small cities with independent political and economic system, their regulation model may have different effect both on the political and social level in mainland China because of the completely different religious and political background in mainland China. With the implementation of the ‘One Belt One Road initiative’, it may bring more uncertainty and risk to the regulation on Islamic Finance in China. Therefore, how to design a proper regulation framework on Islamic Finance in mainland China may need more sophisticated political wisdom.
[1] Dena H Elkhatib & Pierre M Gaunaurd, ‘Islamic Finance’, (2012) 46 the International Lawyer 281,281-82.
[2] Jiang Yingmei, ‘Globalization of Islamic Finance and its Development Trends in China’, (2014) 2 West Asia and Africa 45, 54.
[3] Wang Yongbao, ‘Islamic Financial Market and Their Operational Models under the Risk-Sharing Principle ’, (2014) 2 West Asia and Africa 19, 43.
[4] Zhang Xiaofeng, ‘An Analysis of Introducing Islamic Finance Mode in Western Ethnic Area’, (2009) 4 Journal of Beifang Ethnic University 48, 51.
[5] Zhang Yongli & Wang Bo, ‘A Prospect Analysis of Developing Islamic Finance in Northwest China Based on the OBAOR’, (2016) 18 Journal of Shanghai University of Finance and Economics 36, 43-43.
[6] Mei Xinyu, ‘There is big political risk in Islamic Finance’, < http://www.sohu.com/a/223965899_669860>accessed 23 March 2019.
[7] In 2014, Ningxia Autonomous Region proposed to issue 1.5 billion USD Sukuk bond to attract the investor from Mid-east. See Liu Baoliang, ‘Ningxia is wishing to issue Sukuk bond by attracting oil dollars’ (China Economic Herald, 6 January 2015) <http://www.ceh.com.cn/qyzq/837207.shtml >accessed 13 April 2019.