China draws up five-year plan for the financial sector
May 29, 2018 Category Finance, Weekly
China has mapped out a national financial development plan, setting the goal of building a modern financial system by 2020 and preventing systemic risks. The plan was jointly drawn up by nine ministry-level bodies led by the People’s Bank of China (PBOC), the central bank. The release of the five-year development plan (2016-20) for the financial sector has been delayed by almost two years, due to the restructuring of the nation’s top financial regulatory framework and the fast-changing global financial environment. Compared with the draft version proposed in August 2016, specific sections on further financial opening-up measures were added in the final version.
The plan also clarifies the duty of the Financial Stability and Development Committee under the State Council, which was launched last November. Monetary policy targets will be further optimized, with more emphasis to be put on maintaining price stability The interest rate will gradually replace M2, the broad measure of money supply, as the key factor for monetary policy implementation. The newly-established Committee will supervise financial regulatory departments as well as local governments, which will be held accountable for financial risks. The regulation of “shadow banking” business will be strengthened through greater supervision and wider coverage of the regulation, while irregular financial activities such as illegal fundraising will be combated, media reports said. Prevention of financial risks will continue to be the policy priority in the coming years.
Chen Wenhui, Vice Chairman of the China Banking and Insurance Regulatory Commission (CBIRC), said at a forum at Tsinghua University that China is stepping up efforts to roll out detailed opening-up measures, including easing restrictions on foreign investment and expanding the business scope of foreign-funded banks. Zhu Min, former Deputy Managing Director of the International Monetary Fund (IMF), said that “a modern supervision and regulation system can only be established with an open market”, the China Daily reports.
An example of the opening of the financial sector is the green light given to S&P Global to set up a ratings business in China, a market closed to foreign players for two decades. So far, foreign rating agencies have had to work with a Chinese partner, and S&P had a partnership with Shanghai Brilliance Credit Rating & Investors Service Co. German Chancellor Angela Merkel, on a visit to Beijing last week, said she welcomed recent announcements that China would further open its financial sector to foreign participation, adding that she hoped “concrete progress” could be made on an investment treaty between China and the EU to show both sides’ commitment to free trade.
Foreign investment in China-listed stocks is also expected to rise in the near future. For years, foreign ownership of China’s A shares, or renminbi-denominated equities traded on the stock exchanges in the Chinese mainland, has been static around 2% or less, despite the fact that China’s stock market, whose capitalization is over USD8.5 trillion, is the world’s second largest. Foreign participation was also minimal in the Chinese bond market, the world’s third-largest valued at USD8 trillion as of April. But this will change as Chinese stocks and bonds are poised to be included in major global indices and Chinese regulators intend to further open up the markets by loosening controls on two-way capital flows.
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