Conference sets stage for healthier financial sector

The recently concluded Central Financial Work Conference stressed the need to accelerate the building of a nation with a strong financial sector and pursue financial development with Chinese characteristics, which set the tone for future financial reforms and direction.

The financial sector should go back to its fundamental purpose of serving the real economy, which is a specific demand for China's financial activity in the new era and a distinguishing trait that sets China apart from developed countries in recognizing the nature of finance.

However, attendees at the conference agreed that the quality and efficiency of financial services in boosting the real economy remained modest over the past years, and called for dedicated efforts to foster a more enabling monetary and financial environment, build modern financial institutions and market systems, and promote high-level financial opening-up.

Efforts to create an accommodative monetary and financial climate will enable greater financial services for the real economy and better prevent and defuse major risks. To this end, it is necessary to establish a sound modern monetary policy framework with Chinese characteristics, maintain prudent monetary policy and emphasize cross-cyclical and countercyclical adjustments.

On the one hand, monetary policy should be fully leveraged with adequate policy tools in the pipeline to provide necessary financial support for the development of the real economy. On the other hand, it's crucial to refrain from flooding the economy with massive stimulus or excessive money supply.

The structure of capital supply should be optimized, and both aggregate and structural tools better harnessed, to provide well-targeted support for key areas, including scientific and technological advances, micro and small businesses in the private sector, advanced manufacturing and green development, as well as weak links.

Construction of a modern central banking system should pick up pace. The framework of regulation underpinned by monetary policy and macro-prudential policy needs to be improved, and efforts should be made to see that interest and exchange rates become more market-based.

In addition, building modern financial institutions and market systems is part and parcel of deepening supply-side structural reforms in the financial sector. Therefore, the registration-based initial public offering system should be taken forward — and construction of basic systems and mechanisms strengthened — so as to attract more medium- and long-term capital and invigorate the capital market.

It is vital to enhance a multilevel capital market system, assist the Shanghai and Shenzhen bourses in their ascent to global prominence, and endow the Beijing Stock Exchange with superior standards. Vigorous work should be done to improve the quality of listed companies and ensure delisting as a normal practice and process.

Attendees at the conference also stressed that various contradictions and problems in the financial sector are deeply intertwined, some of which are still highly prominent. The ability to regulate and supervise the financial sector is inadequate, with many hidden economic and financial risks as well as financial turmoil and corruption.

In recent years, some small and medium-sized banks have collapsed. Large financial institutions have gone bankrupt and been reorganized. And certain small-scale local lenders have illegally appropriated public funds, highlighting the significance of bolstering financial regulation and oversight capabilities.

Due to the growing complexity and severity in the financial landscape, the need to comprehensively strengthen financial supervision remains high on the government work agenda.

Prior to the conference, the country's financial regulator has long been enforcing institutional regulation, behavioral supervision, functional oversight, penetrating supervision and continuous monitoring.

On top of the aforementioned regulation, the conference emphasized the need to enhance the efficacy of financial supervision, bring all financial activities under legal oversight and close regulatory blind spots.

In this context, the China Securities Regulatory Commission announced that it will fortify the rule of law within capital markets, enhance anti-counterfeiting work and implement a three-pronged accountability system covering civil, administrative and criminal jurisdictions.

Such irregularities as financial counterfeiting, fraudulent issuances and market manipulation will be severely cracked down upon, and intermediary institutions that do not fulfill their due diligence will be resolutely disciplined.

More stringent early corrective mechanisms for financial risks should be implemented for the early detection, warning, exposure and disposal of risks, to prove the nation's commitment to advancing reforms.

So-called land financing has long been a matter of discussion in many spheres of society, and the relationship between local debt and real estate is not only a long-term issue in financial work, but also an essential topic of current economic growth.

At present, supply and demand in the property market have undergone significant changes. In its most recent global economic outlook, the International Monetary Fund said China's real estate risk presents difficult policy issues. These problems were also raised during the financial work conference.

A government debt management mechanism compatible with high-quality development was suggested during the conference, along with a long-term system to prevent and resolve local debt risks.

It is imperative to promote a mutually reinforcing development of finance and real estate, improve macro-prudential management of real estate financing, accelerate construction of government-subsidized housing and build a new paradigm of property sector development.

This demonstrates the central government's high priority placed on addressing the underlying roots of the land financing problem as well as its hidden dangers, rather than only relieving the immediate strain.

In addition to being a potent counterweight to the present anti-globalization trend, the conference's well-reasoned suggestion to support a high level of financial liberalization in order to guarantee the nation's financial and economic security also helps to develop a new open economic system at a higher level.

Security is a prerequisite for high-quality financial development and high-level liberalization. In the past, the main concern about financial liberalization was that it would have a greater impact on domestic financial markets. For a long time, management of cross-border capital flows has been characterized by easy access and rigorous regulation.

In recent times, two-way opening-up of China's financial sector has continued, even in the face of rising geopolitical confrontation and increased emphasis on the issues of currency weaponization and security deficits.

High-level financial liberalization is defined properly as adopting two-way financial liberalization and adhering to equal priority allotted to both "bringing in" and "going global".

In terms of the "bringing in" strategy, the gradual advancement of reform and opening-up will have a long-term catfish effect that will increase competition and lead to the emergence of more sophisticated business concepts and management techniques, as well as a greater availability of superior investment products and strategies. This will also put pressure on local institutions to expedite reforms and offer better financial services.

With the introduction of more than 50 opening-up measures, China's financial sector has opened up at a significantly faster rate since 2018, as evidenced by the ongoing easing of access requirements for foreign investors, and the further aligning of domestic market regulation and systems with international standards.

Even so, there are still calls for the financial sector to be liberalized, since foreign investors still have to go through numerous procedures in order to obtain institutional access and expand their business operations.

Therefore, it is essential to support systemic financial sector liberalization, improve the facilitation of cross-border investment and financing, and establish a stable, transparent and predictable policy environment for foreign investment in order to attract more foreign financial institutions and long-term capital to China.

In addition, being a global financial center plays a significant role in the development of financial strength. Shanghai can further leverage its role as an onshore international financial hub because of its local advantages.

As the only global financial center that combines the best aspects of China with the rest of the world, the Hong Kong Special Administrative Region serves as a key offshore renminbi international center and will always act as a bridge between the Chinese mainland and the world.

When implementing "going global" policies, it is important to bolster top-notch financial services to better underpin the Belt and Road Initiative. China's financial services have to be accessible to companies looking to grow overseas. Furthermore, the financial sector must go global to provide the financial infrastructure needed for the internationalization of the Chinese currency.

Attendees at the conference also urged for active promotion of yuan internationalization in a more prudent and steady manner. The RMB has moved from being noninternationalized to being internationally recognized, and market acceptance of this change has been steadily growing.

The challenges of financial risks across regions and markets have, however, increased since 2020 due to COVID-19-induced impacts, significant changes in the global political and economic landscape, and stronger spillovers from the monetary policies of major central banks. As a result, the RMB exchange rate has experienced more spikes and falls.

Therefore, the conference reiterated the need to enhance management over the foreign exchange market and keep the yuan exchange rate generally stable at an adaptive, balanced level.

The writer is global chief economist at BOC International.

The views do not necessarily reflect those of China Daily.