Law can help prevent and defuse financial risks

At a news conference on March 3, Yi Gang, governor of the People's Bank of China, the nation's central bank, said that all kinds of financial activities need to be regulated and that the promulgation of the Financial Stability Law is necessary to protect the interests of all.

The domestic financial sector has been flourishing over the past few years, with the banking, security and investment fields all thriving. Besides, China has for years held the world's largest foreign currency reserves, while its stock, debt and insurance markets are all second in the world in size.

How to minimize financial risks therefore has assumed increasing importance. China's financial risks are in general low. Small- and medium-sized banks have mushroomed, but they generally run their businesses in a stable way. The authorities meanwhile have cracked down on "shadow finance", while internet-based financial risks have been effectively rectified, too, with about 5,000 P2P online loan agencies canceled. Over the past five years, China has solved a total of about 25,000 illegal financing cases.

The proposed Financial Stability Law is intended to prevent and defuse financial risks.

The proposed law is mainly about the prevention and defusing of financial risks, and preventing the worst scenario that people worry about, the collapse of financial institutions. China has very strict supervision over financial institutions, but in a market economy any enterprise might fail. That risk can only be lowered via a healthy financial system, and people's interests should be protected by the law in case a financial agency goes bankrupt.

That's the bottom line promised by the central government, namely to prevent any systemic financial risk from happening. But it should be pointed out, that legal supervision does not mean curbing the vitality of the financial sector. Instead it means to serve further prosperity of the sector via reform and opening-up.

Together with stricter supervision there will be enhanced governance of the financial sector. The domestic financial sector will flourish with the coming law and other mechanisms.