Pillars of strength

Over the past few years, China's strategic emerging industries have maintained stable and relatively fast development. This year, strategic emerging industries are expected to account for 15 percent of GDP, and they are gradually becoming a leading force for promoting sustained, sound economic growth and creating an array of innovation-oriented leading enterprises that boast global influence and a dominant role in the world market.

Five new pillar industries each with an output value of 10 trillion yuan ($1.4 trillion)－information technology, high-end manufacturing, biotechnology, green and low-carbon, and digital and creative industries－have taken shape, becoming new driving forces for economic and social development. In addition to financial services such as loans, the companies in these fast-developing strategic emerging industries will inevitably need more comprehensive financing services from various financial institutions, such as financial consultation, funds management, asset securitization and equity investment, among other things.

At the end of 2017, China's service sector accounted for 51.6 percent of its GDP. However, traditional service industries still accounted for the lion's share while modern emerging service industries, such as finance and the insurance industry, scientific research and development, culture and tourism, modern logistics and medical services, only accounted for a small proportion of the total.

It is estimated that China's consumption market size will expand to 45 to 50 trillion yuan in 2020 from 26.2 trillion yuan in 2014 and, by then, service consumption's share will rise to 45 percent of the total from less than 40 percent in 2014. Driven by this change, knowledge-based services and producer service industries, such as modern logistics, finance, accounting and law services, will enjoy more room for development.

Another corresponding change is people's changing financial needs, such as the growing demand for credit cards, personal credit, wealth management and private banks. This provides great impetus and extensive room for financial innovation.

Driven by national strategies, industrial transfer within the Beijing-Tianjin-Hebei Region, along the Yangtze River Economic Belt, between Guangdong province and Hong Kong within the framework of the Guangdong-Hong Kong-Macao Greater Bay Area, and between Beijing and the Xiongan New Area will be the key areas for industrial transfer in the next few years. Industrial transfer is bound to be accompanied by a large amount of infrastructure construction, fixed-asset investment and transregional operating activities, among other things, creating huge demand for financial services.

Reform is needed to make China's financial industry more market-based, international and diversified. Systematic measures should be taken from the supply side to advance reforms aimed at establishing a more open, modern and innovative financial system.

An effective system should be introduced to promote benign interaction between financial sector development and the real economy. To start with, the institutional arrangements for the financial sector should be improved at a quicker pace to meet the demand of the sector's fast growth. Laws and regulations pertaining to the financial sector should be improved, detailed rules for the implementation of laws should be unveiled and financial license management should be improved. Coordination between laws and regulations pertaining to different financial sectors and areas should be strengthened to meet the requirements of booming comprehensive financial services.

With regard to newly emerged financial industries, businesses and products, China should clarify the regulatory body and boundaries and promulgate corresponding regulations and implementation details in a timely manner. Reform of the government-business relationship should be accelerated to further improve the development environment for the real economy. Reform of the administrative approval system and commercial system should be quickened to improve the business environment and lower institutional transaction costs. In terms of tax reform, China should properly lower the value-added tax and income tax rates for businesses, implement the principle of law-based taxation in an all-round manner, gradually introduce the zero-administrative-fee policy and speed up central and local financial system reform. Apart from special areas, investment should be opened up in an all-round manner and private investment should be encouraged. Such institutional reforms will guide financial institutions to serve the real economy.

The regulatory authorities' roles should be transformed, regulatory framework should be improved and financial regulatory authorities' regulation capability should be strengthened. A new regulatory framework should be established to remedy the shortcomings in supervision. China should give full play to the significant role of the Financial Stability and Development Committee, improve the dual-pillar regulatory framework of monetary policy and macro-prudential policy, straighten out the supervision mechanism and strengthen the coordinated supervision of various supervisory authorities with unified supervision targets, standards and pace.

In addition, institutional supervision should be transformed into functional supervision and conduct supervision to reduce regulatory vacuums. Second, China should make the best of financial technologies instruments by actively introducing new regulatory technologies to achieve modernization of financial regulation and enhance regulatory capabilities. It should intensify supervision over internet finance and reinforce supervision over cross-financial services.

The proportion of direct financing should be increased and the establishment of multi-layer financial markets should be accelerated. The Small-and Medium-Enterprise Board, the Growth Enterprise Market and the National Equities Exchange and Quotations should be vigorously developed with properly lowered access thresholds; the establishment of regional equity markets should be encouraged; the variety and layer of the bond market should be increased, with a lowered threshold for businesses to issue bonds, especially small and medium-sized enterprises; merger and acquisition investment funds should be explored and developed, and product innovation of private equity investment funds and venture capital funds should be encouraged. The access threshold for private capital should be relaxed to promote diversity of equities at financial institutions. Finally, financial opening-up should be accelerated with more competition from the outside to spur the increase of financial service quality by domestic service providers.