Banking on reform to secure economic growth - 2024-08-07
Reform and opening-up have been the driving force for China's rapid development. Emphasizing this fact, the recent third plenary session of the 20th Central Committee of the Communist Party of China laid out the plan for further deepening reform comprehensively to advance Chinese modernization.
Financing, the lifeblood of the national economy, plays a crucial role in sharpening a country's competitive edge. And China's financial system needs to be reformed to facilitate the further deepening of reform comprehensively to advance Chinese modernization. The resolution issued by the third plenum has outlined five key areas for financial system reform: improving the central bank system, fine-tuning the role of governance in financial institutions, enhancing capital market functions, strengthening the financial regulatory system, and promoting high-standard financial opening-up.
Improving the central bank system involves creating a dual-pillar framework that includes both monetary policy and macro-prudential regulation, in order to build a stable and flexible financial environment conducive to promoting economic growth. This means fine-tuning the monetary supply control mechanism to align the scale of social financing and monetary supply with economic growth and the pricing mechanism to ensure adequate liquidity.
An effective monetary policy transmission mechanism is essential to prevent the idle circulation of funds. Additionally, a comprehensive toolbox for macro-prudential policies needs to be developed to prevent the cyclical accumulation of systemic financial risks and cross-institutional, cross-industry, cross-market and cross-border contagion. Other critical measures include making the renminbi exchange rate more flexible and maintaining the renminbi's stability.
The second area of focus is fine-tuning the governance and positioning of financial institutions. A key aspect of this is establishing incentive and constraint mechanisms that encourage financial institutions to better serve the real economy. This includes taking measures to ensure financial institutions take responsibility for their actions, establishing a modern corporate system that reflects Chinese characteristics and aligns with international rules.
The resolution also emphasizes the importance of guiding financial institutions to foster a healthy corporate culture and boosting their intrinsic motivation to serve the real economy, and optimizing the management system of State-owned financial capital by adhering to and strengthening the Party's leadership while promoting market-oriented reform to make State-owned financial institutions more efficient and competitive.
Efforts will also focus on bolstering sectors such as technology finance, green finance, inclusive finance, pension finance and digital finance by providing high-quality financial services to key areas and vulnerable sectors of the economy.
The third area of focus is enhancing the functions of the capital market by balancing investment and financing, and increasing the proportion of direct financing. This requires improving the services and returns for investors, improving the assessment and evaluation mechanisms for long-term investment behavior, and strengthening information disclosure requirements for companies seeking to list on stock exchanges and raise funds.
There is a need to develop a robust system for regulating new stock issuance pricing and financing behavior. Facilitating the entry of long-term funds such as pension funds, corporate annuities and insurance funds into the capital market will help curb excessive speculation, while enhancing the regulatory framework for monitoring the behavior of major shareholders and other key entities, strengthening legal responsibilities, and strengthening supervision and increasing penalties will boost market integrity.
Other important measures are fine-tuning the dividend incentive and constraint mechanisms for listed companies, optimizing dividend methods and schedules, and imposing restrictions on companies that exceed their capacity to pay dividends.
To better protect investors, the government needs to increase the penalties for those violating securities regulations and establish a civil compensation system for the securities market. The government also needs to develop diverse equity financing options and accelerate the growth of a multi-tiered bond market, and increase the proportion of direct financing by harmonizing the rules and standards of regional equity markets.
The fourth focus will be on strengthening the financial regulatory system to prevent and mitigate financial risks. This involves strengthening regulatory responsibility and accountability systems, ensuring regulatory departments and personnel at all levels fulfill their duties, and strengthening central and local regulatory coordination to better implement regulations.
Besides, it is necessary to build safe and efficient financial infrastructure, unify rules for registration, custody, clearing and settlement in financial markets, and establish an early correction mechanism for risks, in order to maintain financial stability and prevent systemic risks. It is also necessary to improve the mechanisms for protecting financial consumers and combating illegal financial activities, building a "firewall" between industrial capital and financial capital, and enacting financial laws to lay a solid legal foundation for the development of the financial industry.
And the fifth area of focus is promoting the higher-level opening-up of the financial sector, for which the government needs to expedite the renminbi's internationalization process, develop offshore renminbi markets, and expedite the research on digital renminbi, and improve data protection and information security.
In addition, the government should accelerate the construction of Shanghai as an international financial center and develop a world-class financial service system, improve the management of the pre-establishment national treatment and negative list, and help qualified foreign institutions participate in the financial business pilot programs.
The third plenum's resolution also calls for improving financial market connectivity, optimizing the qualified foreign investor system, urgently building an autonomous and controllable cross-border payment system, strengthening financial security mechanisms under open conditions, expanding the scope of the renminbi cross-border payment system, and establishing a unified full-scale foreign debt supervision system to maintain a reasonable, optimized, and controllable risk structure for foreign debt.
The third plenum has worked out a detailed blueprint for further deepening financial reform and improving macroeconomic governance. This ambitious plan aims to create a robust, efficient, and open financial system that promotes sustainable growth, integrates global standards and mitigates risks, ensuring China's continued progress and growing status on the global stage.
The author is Li Jianjun, vice-president of Central University of Finance and Economics.
Source: China Daily
Financing, the lifeblood of the national economy, plays a crucial role in sharpening a country's competitive edge. And China's financial system needs to be reformed to facilitate the further deepening of reform comprehensively to advance Chinese modernization. The resolution issued by the third plenum has outlined five key areas for financial system reform: improving the central bank system, fine-tuning the role of governance in financial institutions, enhancing capital market functions, strengthening the financial regulatory system, and promoting high-standard financial opening-up.
Improving the central bank system involves creating a dual-pillar framework that includes both monetary policy and macro-prudential regulation, in order to build a stable and flexible financial environment conducive to promoting economic growth. This means fine-tuning the monetary supply control mechanism to align the scale of social financing and monetary supply with economic growth and the pricing mechanism to ensure adequate liquidity.
An effective monetary policy transmission mechanism is essential to prevent the idle circulation of funds. Additionally, a comprehensive toolbox for macro-prudential policies needs to be developed to prevent the cyclical accumulation of systemic financial risks and cross-institutional, cross-industry, cross-market and cross-border contagion. Other critical measures include making the renminbi exchange rate more flexible and maintaining the renminbi's stability.
The second area of focus is fine-tuning the governance and positioning of financial institutions. A key aspect of this is establishing incentive and constraint mechanisms that encourage financial institutions to better serve the real economy. This includes taking measures to ensure financial institutions take responsibility for their actions, establishing a modern corporate system that reflects Chinese characteristics and aligns with international rules.
The resolution also emphasizes the importance of guiding financial institutions to foster a healthy corporate culture and boosting their intrinsic motivation to serve the real economy, and optimizing the management system of State-owned financial capital by adhering to and strengthening the Party's leadership while promoting market-oriented reform to make State-owned financial institutions more efficient and competitive.
Efforts will also focus on bolstering sectors such as technology finance, green finance, inclusive finance, pension finance and digital finance by providing high-quality financial services to key areas and vulnerable sectors of the economy.
The third area of focus is enhancing the functions of the capital market by balancing investment and financing, and increasing the proportion of direct financing. This requires improving the services and returns for investors, improving the assessment and evaluation mechanisms for long-term investment behavior, and strengthening information disclosure requirements for companies seeking to list on stock exchanges and raise funds.
There is a need to develop a robust system for regulating new stock issuance pricing and financing behavior. Facilitating the entry of long-term funds such as pension funds, corporate annuities and insurance funds into the capital market will help curb excessive speculation, while enhancing the regulatory framework for monitoring the behavior of major shareholders and other key entities, strengthening legal responsibilities, and strengthening supervision and increasing penalties will boost market integrity.
Other important measures are fine-tuning the dividend incentive and constraint mechanisms for listed companies, optimizing dividend methods and schedules, and imposing restrictions on companies that exceed their capacity to pay dividends.
To better protect investors, the government needs to increase the penalties for those violating securities regulations and establish a civil compensation system for the securities market. The government also needs to develop diverse equity financing options and accelerate the growth of a multi-tiered bond market, and increase the proportion of direct financing by harmonizing the rules and standards of regional equity markets.
The fourth focus will be on strengthening the financial regulatory system to prevent and mitigate financial risks. This involves strengthening regulatory responsibility and accountability systems, ensuring regulatory departments and personnel at all levels fulfill their duties, and strengthening central and local regulatory coordination to better implement regulations.
Besides, it is necessary to build safe and efficient financial infrastructure, unify rules for registration, custody, clearing and settlement in financial markets, and establish an early correction mechanism for risks, in order to maintain financial stability and prevent systemic risks. It is also necessary to improve the mechanisms for protecting financial consumers and combating illegal financial activities, building a "firewall" between industrial capital and financial capital, and enacting financial laws to lay a solid legal foundation for the development of the financial industry.
And the fifth area of focus is promoting the higher-level opening-up of the financial sector, for which the government needs to expedite the renminbi's internationalization process, develop offshore renminbi markets, and expedite the research on digital renminbi, and improve data protection and information security.
In addition, the government should accelerate the construction of Shanghai as an international financial center and develop a world-class financial service system, improve the management of the pre-establishment national treatment and negative list, and help qualified foreign institutions participate in the financial business pilot programs.
The third plenum's resolution also calls for improving financial market connectivity, optimizing the qualified foreign investor system, urgently building an autonomous and controllable cross-border payment system, strengthening financial security mechanisms under open conditions, expanding the scope of the renminbi cross-border payment system, and establishing a unified full-scale foreign debt supervision system to maintain a reasonable, optimized, and controllable risk structure for foreign debt.
The third plenum has worked out a detailed blueprint for further deepening financial reform and improving macroeconomic governance. This ambitious plan aims to create a robust, efficient, and open financial system that promotes sustainable growth, integrates global standards and mitigates risks, ensuring China's continued progress and growing status on the global stage.
The author is Li Jianjun, vice-president of Central University of Finance and Economics.
Source: China Daily
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