Road map for fi­nan­cial re­form

China Daily (Hong Kong) - - COMMENT - ZHOU XIAOCHUAN

IEdi­tor’s note: The au­thor, the gov­er­nor of the Peo­ple’s Bank of China, out­lines fi­nan­cial re­forms in his re­cent ar­ti­cle in Peo­ple’s Daily. The fol­low­ing is the first part of an ex­cerpted trans­la­tion. n a move to push for im­prov­ing China’s mod­ern mar­ket sys­tem, the Third Ple­nary Ses­sion of the 18th Cen­tral Com­mit­tee of the Com­mu­nist Party of China has drawn up a road map for com­pre­hen­sive and deep­ened re­forms.

As the core of a mod­ern econ­omy, the fi­nan­cial sec­tor is at the heart of China’s so­cial­ist mar­ket sys­tem. To do a bet­ter job in the fi­nan­cial sec­tor in the fu­ture, the coun­try should firmly hold on to the es­sen­tial prin­ci­ple that the fi­nan­cial sec­tor should serve the real econ­omy, ad­here to the re­form di­rec­tion that the mar­ket dom­i­nates the dis­tri­bu­tion of fi­nan­cial re­sources, and stick to a de­vel­op­ment con­cept that pri­or­i­tizes co­or­di­na­tion be­tween in­no­va­tion and over­sight.

In line with the plenum’s mapped pro­gram, we need to com­pre­hen­sively push for re­forms, open­ing-up and de­vel­op­ment, and ac­cel­er­ate the es­tab­lish­ment of a safe, sound and mod­ern fi­nan­cial mar­ket sys­tem with a broader range of ser­vices, a rea­son­able struc­ture and greater ef­fi­ciency.

A more com­pet­i­tive and in­clu­sive fi­nan­cial ser­vices sec­tor

Ef­forts will be made to ex­pand the open­ing-up of the do­mes­tic fi­nan­cial sec­tor, and, un­der the pre­con­di­tion of strength­ened fi­nan­cial su­per­vi­sion, small-and medium-sized banks and other pri­vate fi­nan­cial in­sti­tu­tions will be al­lowed to en­ter the mar­ket. 1. To ex­pand fi­nan­cial open­ing-up. Ef­forts will be made to both raise the coun­try’s ca­pa­bil­i­ties in the dis­tri­bu­tion of fi­nan­cial re­sources, so they cover a wider range and are at a higher level, and boost the qual­ity of its fi­nan­cial ser­vices. Ef­forts will also be made to strengthen the com­pet­i­tive­ness of do­mes­tic fi­nan­cial de­part­ments and pro­mote the cross-bor­der use of the RMB, as well as the es­tab­lish­ment of an in­ter­na­tional fi­nan­cial center to push for China’s eco­nomic trans­for­ma­tion and struc­tural up­grad­ing. Mea­sures will be taken to fur­ther ex­pand the open­ing-up of the fi­nan­cial sec­tor and grad­u­ally fol­low the new open­ing-up model that en­tails pre-es­tab­lish­ment na­tional treat­ment and neg­a­tive lists and the pro­mo­tion of a high-level open­ing-up of the do­mes­tic fi­nan­cial ser­vices sec­tor.

2. To al­low for the es­tab­lish­ment of fi­nan­cial in­sti­tu­tions by pri­vate cap­i­tal un­der the con­di­tion of strength­ened over­sight.

Based on the prin­ci­ples of eq­uity, open­ness and trans­parency, a uni­fied mar­ket ac­cess sys­tem will be adopted to en­cour­age and guide the flow of pri­vate cap­i­tal to fi­nan­cial ser­vices. As a ser­vice sec­tor with fierce com­pe­ti­tion, the fi­nan­cial sec­tor should, in ac­cor­dance with the neg­a­tive lists mar­ket ac­cess sys­tem and the re­quire­ment for ser­vices ex­pan­sion, pro­vide a mar­ket en­vi­ron­ment for eq­ui­table com­pe­ti­tion and the en­try of var­i­ous kinds of in­vestors. To al­low qual­i­fied pri­vate cap­i­tal to set up small-and medium-sized fi­nan­cial in­sti­tu­tions when strength­ened over­sight is in place will cre­ate the sup­ply of nec­es­sary and com­pet­i­tive fi­nan­cial prod­ucts to the real econ­omy, which will help some lo­cal re­gions and small-and mi­cro-sized en­ter­prises ease their fund short­ages. 3. A mod­ern fi­nan­cial cor­po­rate sys­tem. Mea­sures will be taken to fur­ther im­prove the gov­er­nance ca­pa­bil­ity of State-owned fi­nan­cial in­sti­tu­tions, re­lax lim­i­ta­tions on the en­try of pri­vate and for­eign cap­i­tal to the fi­nan­cial sec­tor and op­ti­mize its eq­uity struc­ture. A more mar­ket-ori­ented hir­ing mech­a­nism will be adopted to re­duce ad­min­is­tra­tive ap­point­ments. A be­nign in­cen­tive mech­a­nism for man­age­ment will be set up to en­sure that re­al­iz­ing share­hold­ers’ in­ter­ests is the main goal of se­nior man­age­ment. Mea­sures will also be taken to im­prove the cor­po­rate gov­er­nance of do­mes­tic fi­nan­cial in­sti­tu­tions, to form an ef­fec­tive de­ci­sion-mak­ing, en­force­ment and bal­anc­ing mech­a­nism that can im­ple­ment cor­po­rate gov­er­nance mea­sures in their daily op­er­a­tions, man­age­ment and risk con­trol. Mean­while, stan­dard­ized and ef­fec­tive in­cen­tive and re­straint mech­a­nisms, in­clud­ing a salary sys­tem, will be es­tab­lished. 4. To de­velop a fi­nan­cial sys­tem ben­e­fi­cial to all. A fi­nan­cial sec­tor that pri­or­i­tizes im­prove­ments in peo­ple’s liveli­hoods should be set up to meet their ever-grow­ing fi­nan­cial needs. The fruits of fi­nan­cial re­forms and de­vel­op­ment will be ex­tended to all re­gions, poor ones in par­tic­u­lar, and to all groups, to pro­mote the sec­tor’s sus­tain­able de­vel­op­ment. The lim­i­ta­tions on mar­ket ac­cess will be mod­er­ately re­laxed to sup­port the de­vel­op­ment of small-sized fi­nan­cial in­sti­tu­tions. Pol­icy guid­ance will be strength­ened to en­cour­age do­mes­tic fi­nan­cial in­sti­tu­tions to ex­tend sup­port to the weaker sec­tors nec­es­sary for na­tional eco­nomic and so­cial de­vel­op­ment. Vig­or­ous ef­forts will be made to de­velop mul­ti­ple fi­nanc­ing meth­ods, stan­dard­ize the de­vel­op­ment of the pri­vate lend­ing and bor­row­ing busi­ness and ex­pand diver­si­fied fi­nanc­ing chan­nels for small- and mi­cro-sized en­ter­prises. In­no­va­tive fi­nan­cial prod­ucts and tools will be en­cour­aged to con­tin­u­ously ex­pand the cov­er­age of fi­nan­cial ser­vices. Mea­sures will also be taken to strengthen the con­struc­tion of fi­nan­cial in­fra­struc­ture and im­prove the mod­ern­iza­tion level of fi­nan­cial ser­vices. At the same time, the build­ing of a credit sys­tem will be pushed for­ward to fur­ther op­ti­mize the en­vi­ron­ment for the pro­vi­sion of fi­nan­cial ser­vices to small-and mi­cro-sized en­ter­prises, strength­ened pro­tec­tion of con­sumers’ rights and the rais­ing of their fi­nan­cial aware­ness.

A multi-layer cap­i­tal mar­ket sys­tem will be built

Ef­forts will be made to raise the coun­try’s di­rect fi­nanc­ing pro­por­tion, push for re­forms of the stock is­suance reg­is­tra­tion sys­tem, pro­mote multi-chan­nel eq­uity fi­nanc­ing, de­velop and stan­dard­ize the do­mes­tic bond mar­ket, as well as im­prove insurance mar­ket and en­cour­age fi­nan­cial in­no­va­tion. 1.To raise the ra­tio of di­rect fi­nanc­ing. Vig­or­ous ef­forts will be made to push for the trans­for­ma­tion of the coun­try’s eco­nomic de­vel­op­ment mode and eco­nomic struc­tural ad­just­ment, and de­velop the stock, bond and other cap­i­tal mar­kets. There will also be vig­or­ous ef­forts to ex­pand the di­rect fi­nanc­ing chan­nels for en­ter­prises and to op­ti­mize the struc­ture of so­cial fi­nanc­ing. The mar­ket-ori­ented re­form di­rec­tion will be con­tin­ued to re­duce un­nec­es­sary ad­min­is­tra­tive reg­u­la­tions, spark mar­ket mo­ti­va­tion and its in­trin­sic vi­tal­ity, and to cul­ti­vate com­mer­cial credit. Un­der the con­di­tion of re­spect­ing mar­ket prin­ci­ples, vig­or­ous ef­forts will be made to boost var­i­ous kinds of in­sti­tu­tional in­vestors in or­der to pro­mote the di­ver­si­fi­ca­tion of the do­mes­tic fi­nan­cial mar­ket, prod­ucts, in­vestors and in­ter­me­di­aries. The con­cept of stan­dard­ized de­vel­op­ment will be main­tained to strengthen mar­ket re­straint and the risk-shar­ing mech­a­nism and fur­ther boost the trans­parency of mar­ket op­er­a­tions. At the same time, mea­sures will be taken to pro­mote the es­tab­lish­ment of a sound frame­work of laws, fi­nan­cial reg­u­la­tions and over­sight, as well as the adop­tion of sound fi­nan­cial and tax­a­tion poli­cies.

2.To push for­ward re­forms of the stock is­suance reg­is­tra­tion sys­tem.

Based on full in­for­ma­tion dis­clo­sure, mea­sures will be taken to re­duce the ad­min­is­tra­tive ex­am­i­na­tions and ap­proval process for the qual­i­fi­ca­tion of share is­suers. Mea­sures will also be taken to strengthen the flex­i­bil­ity of the stock is­suance sys­tem to re­duce costs and in­crease fi­nanc­ing ef­fi­ciency. Ef­forts will be made to strengthen on­goingevent and post-event over­sight and im­prove the cur­rent civil­ian and crim­i­nal ac­count­abil­ity sys­tem to ef­fec­tively check fraud in the list­ing process. Fur­ther im­prove­ments will be made to the cur­rent exit sys­tem for listed com­pa­nies to raise the qual­ity of listed cor­po­ra­tions through the elim­i­na­tion of those that are not qual­i­fied. There will be crack­downs on mal­prac­tices, such as false state­ments, mar­ket rig­ging and in­sider deal­ings, and stronger mar­ket re­straints and credit re­straints on listed com­pa­nies and in­ter­me­di­ary agen­cies to pro­tect the le­git­i­mate rights and in­ter­ests of in­vestors and to en­sure the open­ness, eq­uity and jus­tice that the stock mar­ket des­per­ately needs. 3.To push for multi-chan­nel eq­uity fi­nanc­ing. While con­tin­u­ously im­prov­ing var­i­ous stock ex­change bourses, con­tin­u­ous ef­forts will be made to push for the con­struc­tion of a multi-bourse eq­uity mar­ket. Un­der a uni­fied in­sti­tu­tional frame­work, all prov­inces, mu­nic­i­pal­i­ties and au­ton­o­mous re­gions will be able to set up eq­uity mar­kets that are suit­able for the lo­cal eco­nomic de­vel­op­ment con­di­tions. Mea­sures will be taken to guide pri­vate eq­uity in­vest­ment and ven­ture cap­i­tal in­vest­ment to sup­port the eq­uity fi­nanc­ing of in­no­va­tive and growth en­ter­prises. At the same time, dif­fer­en­ti­ated in­sti­tu­tional ar­range­ments and a uni­fied reg­is­tra­tion plat­form will be set up to push for the for­ma­tion of an or­ganic eq­uity mar­ket sys­tem. 4. To de­velop and stan­dard­ize the bond mar­ket. Mea­sures will be taken to steadily ex­pand the scale of the do­mes­tic bond mar­ket, push for the in­no­va­tion and di­ver­si­fi­ca­tion of fi­nan­cial prod­ucts and in­crease the se­cu­ri­ti­za­tion of as­sets. Ex­plo­rations will also be made into mu­nic­i­pal bonds to im­prove the fi­nanc­ing mech­a­nism for ur­ban­iza­tion. At the same time, mea­sures will be taken to de­velop col­lec­tive bonds, pri­vate bonds and other fi­nanc­ing tools to ex­pand en­ter­prises’ fi­nanc­ing chan­nels and in­crease the fi­nan­cial sup­port to the real econ­omy.

5. To im­prove eco­nomic com­pen­sa­tion mech­a­nism and set up a catas­tro­phe insurance sys­tem.

Mea­sures will be taken to push for­ward the leg­is­la­tion for catas­tro­phe insurance, de­fine the range of catas­tro­phe insurance and set up a gov­ern­ment­driven, mar­ket-op­er­ated and risk-shar­ing, mul­ti­layer catas­tro­phe insurance sys­tem. Gov­ern­ment and mar­ket roles will be de­fined to en­cour­age the in­volve­ment of com­mer­cial in­sur­ers in ma­jordis­as­ter insurance.

6. To en­cour­age fi­nan­cial in­no­va­tion and en­rich the fi­nan­cial mar­ket strata and prod­ucts.

An in­no­va­tion-driven de­vel­op­ment strat­egy will be adopted to steadily push for­ward in­no­va­tion of the do­mes­tic fi­nan­cial mar­ket mech­a­nism. There needs to be a long-term in­no­va­tion mech­a­nism for its or­ga­ni­za­tion, prod­ucts and ser­vices. At the same time, risk-preven­tion mea­sures will be put in place from the very be­gin­ning to bal­ance in­no­va­tion, de­vel­op­ment and risks and pre­vent in­no­va­tions that aim to evade fi­nan­cial over­sight and de­vi­ate from meet­ing the de­mands of the real econ­omy.

7. To strengthen con­struc­tion of fi­nan­cial in­fra­struc­ture and en­sure safe and ef­fi­cient op­er­a­tion and sta­bil­ity of the do­mes­tic fi­nan­cial mar­ket.

Ac­tive and pru­dent mea­sures will be taken to im­ple­ment the prin­ci­ples of rel­e­vant in­ter­na­tional or­ga­ni­za­tions and strengthen the con­struc­tion of China’s fi­nan­cial in­fra­struc­ture. Ef­forts will be made to push for­ward the build­ing of a trade in­for­ma­tion re­port­ing sys­tem and other fa­cil­i­ties to im­prove sys­tems for the reg­is­tra­tion of fi­nan­cial prod­ucts, trustee­ship, trad­ing, clear­ing and set­tle­ment. Ef­forts will also be made to pro­mote more ef­fi­cient in­for­ma­tion pro­cess­ing and trans­mis­sion among th­ese sys­tems and su­per­vi­sory or­gans.

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