View of the Huangpu River in Shanghai. [Photo/VCG]
Over the past few years, China has made remarkable progress in promoting high-standard financial opening, with a total of 1,110 foreign institutions now entering the domestic bond market. However, there is still a long way to go before China’s financial market realizes a highly efficient allocation of global financial resources. The country should make further efforts to deepen reforms, improve the system, optimize policies and promote their implementation.
Challenges
China is currently facing several new challenges in further opening up its financial market.
The trend of anti-globalization is on the rise, and some Western countries are fanning the theory of the “Chinese threat”. In the name of “risk reduction”, they encourage foreign firms to leave the Chinese market. As a result, some financial institutions that mainly serve multinational corporations are shifting their business focus overseas as well, along with the change in both industrial and supply chains.
Some advanced economies have also imposed restrictions on investment in China and excluded Chinese enterprises from some well-known global and regional stock and bond benchmarks, thereby gradually “uncoupling” themselves from China’s financial sector.
In addition, China has encountered some temporary difficulties in its economic recovery after the COVID-19 pandemic, as well as in its economic transformation and upgrading, which has raised some doubts in the minds of foreign investors. They are used to the long-term rapid growth of the Chinese economy, and thus a temporary slowdown could significantly affect their willingness to invest.
Suggestions
To address these challenges and further promote financial opening, China should make continuous efforts in the following five aspects.
First, China should promote further opening up in more financial sub-sectors, including technology finance, green finance, inclusive finance, pension finance and digital finance.
Currently, the country expects to make better use of credit, equity and debt to support innovation in the science and technology sector. Meanwhile, in some developed foreign markets, various financial institutions with rich experience in this field can provide the products that China needs.
China has also actively sought international cooperation in green finance, which has contributed to relevant product development, rule-making, and investment and financing activities. Having issued the largest amount of green bonds in the world, China remains quite attractive to international investors for this reason.
Boosting pension funding could be an effective way for China to deal with its rapidly aging population. With the help of foreign investors, the country can better plan and invest in pension financing, as well as improve the pension insurance system.
The digital finance sector has seen rapid growth in recent years. Countries rely on it to provide more financial services, prevent and control risks, and improve management efficiency and customer service. Furthermore, cross-border flows of financial data have now become a new focus for rule-making, cooperation and governance in financial markets worldwide. China should facilitate such flows while ensuring the security of data transmission. It should classify all financial data and set standards for the appropriate management of cross-border data flows.
Second, the country needs to attract and retain more foreign financial institutions, further enriching the modern financial system. Although the country has already formulated a number of policies to support foreign institutions operating or investing in China, there are still some problems in the actual implementation of said policies, such as the fragmentation of day-to-day regulation.
While unifying the management standards of domestic and foreign institutions to meet common needs, China must not forget to create sufficient conditions for foreign investors to use its special advantages. It should optimize relevant policies and provide more convenience for foreign firms based on their business experience and overall strengths, ensuring that there is more scope for growth.
Third, China should build a fully functioning domestic financial market with comprehensive rules, reasonable structure and strict regulations. It should compare the rules of the local financial market with those of advanced markets so as to remain in line with internationally recognized standards, effective rules and best practices. As China gradually improves the security, transparency and predictability of its policies, foreign investors will have more confidence in the country’s financial sector.
China should also develop high-quality investment products for the world by deepening reforms, strengthening supervision and improving corporate governance, and better protect investors by balancing the interests of both supply and demand and severely punishing violators of existing laws.
Fourth, China should provide more convenience for cross-border trade activities as well as investment and financing. At present, foreigners who come to China for business, tourism and short-term exchange still face a number of difficulties in obtaining basic financial services.
For example, mobile payment penetration in China has reached 86 percent, ranking first in the world. While Chinese can use mobile phones to make payments in almost all cases, foreigners are less accustomed to such practices. China needs to connect its convenient mobile payment system with traditional payment methods such as credit cards, thereby seeking common ground between payment systems at home and abroad.
In addition, Western countries are shifting industrial and supply chains to Southeast Asia, which is China’s close neighbor and a region actively engaged in the Belt and Road Initiative. China should actively pursue monetary and financial cooperation with the region to facilitate cross-border business by all types of entities.
Fifth, China should do everything possible to protect economic and financial security in the process of opening up. It should fill gaps in financial regulation and further improve the precision and effectiveness of regulations. In addition, in order to manage financial risks, China needs to create a more efficient system, enrich the toolkit and make the necessary preparations.
Promoting international cooperation is also an effective way to achieve financial security. Since the outbreak of the financial crisis in 2008, major countries have learned their lessons and cooperated to strengthen regulation of all banks. Today, the world needs to strengthen economic and financial policy coordination and jointly respond to development challenges, thereby building a sustainable international economy and financial safety net.
The writer is a former deputy governor of the People’s Bank of China, the country’s central bank, and a former chairman of the Export-Import Bank of China.
The article is a translation of key parts of her speech to the 2023 annual conference of the China Wealth Management 50 Forum, a think tank.
Opinions do not necessarily reflect those of China Daily.
