New Developments in Financial Policy Illustrate China’s Strong Resolute to Further Reform
By Zhongyin, research professor, Academy of International and Regional Studies, Beijing Language and Culture University
The 15th Lujiazui Forum held near the end of June highlighted some renewed approaches and financial reform as China’s economy continues to recover. What are some of these approaches and how they will prepare China for recovery in the future are particularly noteworthy before the Third Plenary Session of the CPC Central Committee takes place in mid-July, an important event that attracts world-wide attention and will make great decision on how to further promote reform at this important juncture of China’s economy on its way toward high-quality development, a shift from development that simply pursues quantity and growth to one that takes quality and efficiency as the primary goals.
Officials from such key national financial bureaus as the Central Financial Office, the People's Bank of China, the State Financial Supervision Administration, and the China Securities Regulatory Commission all attended the meeting and made speeches, trying to convey a benign signal of prompting high-quality development in financial field to both domestic and international audience.
Four new contents can be summarized from the above-mentioned speeches, which indicate the intention to not only create preconditions for a more structural growth toward high-quality economy, but also boost public confidence and improve market prospect at a time of economic recovery.
First comes the efforts to embrace the development of new quality productive forces, which not only include the cultivating and nurturing of emerging industries and future industries, but also the upgrading of traditional industries. Finance sector is counted on conducting in-depth research on the characteristics and development patterns of relevant enterprises, recognizing their needs in investment and financing, and enriching the tools and services of the capital market in a targeted manner.
Since technological innovation is the core element for the development of new productive forces, which usually has the characteristics of high investment, long cycle, and high operating uncertainty, finance should, as the new policy requires, actively create conditions to attract more medium and long-term funds to enter the capital market, playing the role of patient capital that adheres to "long-termism", to support the development of technological innovation enterprises, especially startups, small businesses and those focusing on hard technology.
The Government Work Report released at the National People’s Congress in March this year proposed to “actively cultivate emerging industries and future industries”, “consolidate and expand the leading advantages of intelligent connected new energy vehicles and other industries” and “accelerate the development of cutting-edge emerging hydrogen energy, new materials, innovative drugs and other industries", etc. These future industries that are destined to lead the development of the times all require long-term continuous investment of large amounts of R&D capital.
For this purpose, new measures have been declared by China Securities Regulatory Commission immediately after the forum to improve systems and mechanisms such as issuance and underwriting, mergers and acquisitions, equity incentives, and transactions, to help strengthen horizontal and vertical integration and coordination of the industry, strengthening mergers, acquisitions and reorganizations in the upstream and downstream of the industrial chain, so as to better serve technological innovation and the development of new productivity.
Second is to promote listed companies to be more responsible for their investment value. For a long time, lack of regulation and awareness has made some companies care less about providing market returns back to investors, but rather concentrating on earning their own profit, losing credibility gradually. The government decides this cannot sustain long. Now listed companies are guided to improve information transparency and governance standardization, and better use cash dividends, repurchases and cancellations to repay investors. Strict laws and regulations are adopted to further protect the interests of investors, such as more strict supervision of high-frequency quantitative trading and other trading tools, with a view to exclude any possibility of price manipulation against investors. Proactive measures are also be taken to better leverage the active role of insurance institutions, promote the implementation of more securities special representative litigation, advance compensation, and provide investors with a more powerful way to obtain compensation relief support.
Third is to further promote the market-oriented reform of interest rates and better use monetary tools to stimulate economic vitality. Following the policy of supporting the gradual increase in the purchase and sale of government bonds during the central bank’s open market operations declared in April, this time the Governor of the People's Bank of China further pointed out to improve the market-oriented interest rate control mechanism, and consider making the 7-day reverse repurchase operation interest rate the main policy interest rate in the future. The idea is to get rid of some unreasonable market behaviors that easily reduce the transmission of monetary policy such as imbalanced credit release, idling of funds, and manual interest payments. It will also help stabilize the market and its prospect as a whole.
Fourth is to further promote high-level financial opening up, so as to attract more overseas investment and expedite mutual investment. Efforts are made to further simplify and improve the capital management of qualified foreign institutional investors in supporting the expansion of patient capital. Domestic institutions are also encouraged to carry out cross-border investments, with a total of US$2.27 billion in quotas have been issued to 53 qualified domestic institutional investors. Moreover, further efforts will be made to promote the facilitation of foreign exchange for cross-border trade and investment, and expand cross-border financing for scientific and technological innovation enterprises, to unleash more incentives in this regard.
All in all, the above new developments in the financial area are closely in consistent with the major themes of China’s economic development in the meantime and future, which are facilitating technology innovation, safeguarding the interest of investors, ensuring economic security and further opening up to the outside world respectively. With China’s economy entering a new age of high-quality development, it is the quality of growth, the happiness of people, a healthy and dynamic market, as well as a transparent and lawful capital environment that are what really count.