Financial reform imperative for risk control

It is undeniable that China’s financial system has shown some problems due to its addiction to the dividends of infrastructure and real estate. Some speculators have even taken advantage of regulatory loopholes to conduct risk-free arbitrage. Undisciplined financial activities naturally tend to create financial risks.

That’s why the central authorities have recently highlighted the urgency of effectively managing and controlling the risks to avoid a systemic crisis, and better boost the development of the real economy. Governments at various levels are urged to strive to realize the goal of turning China into a country with a strong financial sector.

Notably, the transformation process of China’s financial system coincides with the major cycle of economic structural adjustment. Therefore, the process may be accompanied by a series of uncertainties, such as asset value revaluation, amendments to financial regulations, monetary policy adjustments, etc. This will undoubtedly be a process of systemic restructuring related to changes in the overall development patterns and growth models of the country.

The excessive debt of the US federal government and its weaponization of the US dollar have led to an increase in the vulnerability of the global financial system. In addition, in response to the COVID-19 pandemic over the past few years, many countries have increased their debts significantly.

These moves have resulted in continued high inflation and high interest rate shocks in the world, an overture to a global economic slowdown this year, and consequent increase in global financial risks.

That being said, China should accelerate the forming of an effective financial regulatory system, a well-structured financial market system, and a developed system of financial institutions with a reasonable division of responsibility. A complete and effective financial supervision system, a diversified and professional financial products and services system, a team of capable financial talents and an independent, controllable, safe and efficient financial infrastructure system are all indispensable for a strong financial sector.

In particular, the country needs to continuously strengthen its support to promote the renminbi’s internationalization and further expand foreign investment and trade settled in the renminbi, so as to consolidate the foundation of its financial sector.