China on the move to sharpen financial strength
PekingEnsight compiled a list of tasks the country is striving to deal with while exploring a path of financial development with Chinese characteristics.
After the Chinese leadership drew the blueprint of making China into a financial powerhouse at the central financial work conference last October, the country’s financial regulatory authorities under the State Council have been on the move to materialize the goal.
PekingEnsight has gleaned the official speeches, new documents and handouts of key press conferences of China’s financial regulatory bodies and compiled a list of tasks the country is striving to deal with while exploring a path of financial development with Chinese characteristics. They are as follows:
1. Five key aspects for high-quality development
The central financial work conference set the ambitious goal of building China into a financial powerhouse, and outlined efforts to develop technology finance, green finance, inclusive finance, pension finance and digital finance, giving strong impetus to high-quality development and providing significant opportunities for China’s financial sector.
These five aspects relate to the supply-side reform of the financial industry.
Take technology finance for instance, its essence is to support technical innovation. On Jan. 12 the National Financial Regulatory Administration issued an Notice on Strengthening Financial Services for the Whole Life Cycle of Technology-based Enterprises.
For technology start-ups, more financial support will be extended on the premise of effective risk prevention and control, hopefully through a new model of "loan + external direct investment." For those in growth stage, financial services will emphasize expanding the scope of collateral guarantees, accelerating the development of intellectual property pledge financing, and standardizing the development of supply chain finance. Insurers are encouraged to develop new type of insurance that can cover enterprises’ losses in the costs of commercializing scientific and technological achievements.
As for technical firms that already mature, financial support will mainly revolve around enhancing the accessibility of the merger and acquisition loans of commercial banks.Â
2.Financial opening-up
Chinese leadership reemphasized at the conference the need to effectively open up the financial sector at a high standard, facilitate cross-border investment and financing, and attract more foreign financial institutions and long-term capital to invest and do business in China.
Specifically, China has improved a number of regulatory rules, and revised the Rules on Financial Asset Classification of Commercial Banks and the Rules on Capital Management of Commercial Banks to better align domestic rules with international standards. Â
China will also accelerate efforts to improve the pre-entry national treatment plus negative list approach, further ease market access requirements for foreign institutions, continuously enhance the transparency, stability and predictability of financial regulations and policies, and strive to create an institutional environment conducive to prudent operation and fair competition.
3. Financial oversight with "teeth and thorns"
The Chinese leadership has called for exercising tougher financial oversight that has "teeth and thorns" to defuse financial risks and uproot corruption.
Financial regulatory bureaus in different localities strove to meet the requirements. In Beijing, for instance, financial oversight mainly targets "key cases" that may affect financial stability, the "key individuals" that could cause major financial risks, and the "key behaviors" that would disrupt market order.
Emphasis is also placed on detecting risks as early as possible, warding off substantial risks concerning shareholder equity and related transactions and ferreting out hidden risks triggered by "pseudo-innovation" and "dancing around rules. "Â
4. Inclusive finance to boost common prosperity
In east China’s Anhui Province, local financial authority is seeking to advance inclusive finance to boost rural revitalization as the province is seeking to enhance its agricultural prowess. As of the end of November 2023, the balance of agriculture-related loans of local banks was 2.6 trillion yuan, an increase of 20 percent from the beginning of the year, with the scale and growth rate ranking first in the country. A large portion of the loans have been used to finance the improvement of rural living environment and infrastructure facilities. Local insurers also experimented with new business models to support the seed industry and high-quality farmland development.
In Ningbo where small and micro enterprises and individual industrial and commercial households take up 96 percent of local business entities, the optimization of financial policies mainly revolves around exploring a long-term mechanism to meet the financial thirst of small and micro-businesses. By the end of 2023, the outstanding loans to small and micro enterprises in Ningbo was 648.957 billion yuan, an increase of 32.39 percent from the beginning of the year, 16.68 percentage points higher than the average growth of various loans. Clearly, local financial authorities have been encouraged to take a differentiated approach in line with local conditions to boost the country’s financial strength. There are no one-size-fits-all solutions.
5. Foster supply chain resilience and Belt-and-Road cooperation
Finance is the lifeblood of economy, and the innovation of financial products must be advanced on the track of marketization.
China Export and Credit Insurance Corporation for instance is in the forefront of the country’s supply-side financial reform. The state-owned policy insurance company said it will further give play to the role of policy-based export credit insurance to support inter-connectivity projects under the Belt and Road Initiative, including the construction of railways, roads, ports, airports, oil and gas pipelines, and continue to explore underwriting businesses to help improve the resilience and competitiveness of China's industrial chain supply chains. In 2023, the company optimized underwriting policies for green business and posted a total insurance value of nearly 39 billion U.S. dollars in new energy and other fields.