President of CCDC Chen Gangming Addressed the 6th F.10 Forum
Dear guests and friends:
April is a good season in Beijing with beautiful sky and flowers. We are very happy to have you all here in the F.10 forum to discuss financial reform and market development.
As is stated in the report of the 19th CPC National Congress, the socialism cause with Chinese characteristics has entered a new era and China’s economic development has entered a new stage too. The basic feature is that the economy has shifted from a high-speed growth phase to a high-quality development phase. As the core of the modern economy, finance sector should not only service the high-quality development of the real economy, but also achieve the healthiness and stability through required reforms and upgrading.
In practice, the deleveraging of China's financial system was significant in 2017. The proportion of added value in the financial industry as a percentage of GDP declined, and the growth rate of M2 and bank assets both fell. Fund flows are more in favor of real economy instead of virtual sectors. This development has effectively promoted China's steady economic development and has stabilized market expectations. The future will see the opportunities of as well as the challenges to high quality development of the financial system. From an international perspective, the monetary policies of major advanced economies are being gradually normalized, the global interest rate trajectory has shifted upwards, geopolitical and trade frictions have occurred frequently, and the impact on domestic financial markets should not be underestimated. From a domestic point of view, although the financial supervision system has been continuously strengthened and the functional supervision system has been gradually improved, the price level of some assets and macro leverage ratios remain elevated. In addition, financial regulatory arbitrates need to be rectified and the potential development of financial risks warrants close attention. Facing the complicated internal and external environment, we must actively implement the strategic deployment of high-quality development by providing better services to real activities, preventing and controlling risks, and deepening reforms. We must establish and improve a high-quality financial system to promote high-quality economic development. .
First, back to basics and improve the level of the financial service for economy
The fundamental reasons behind historic global financial crises are mostly related to financial deviation from the real economy with excessive internal circulation and self-propelled expansion. For some time in the past, some domestic financial institutions’ funds were circulated only in the virtual sectors other than real economy, resulting in distortion of pricing signals and increased financing costs. This not only damaged the development of the real economy, but also built up gigantic financial risks. In order to consolidate the foundation for the high-quality development, the first priority should be directing more funds to the real economy. Macro-prudential regulation needs to be strengthened, fully covering financial products and activities including off-balance-sheet products like wealth management, interbank deposit certificate and Internet-based finance, and restricting funds from circulating only within the financial system. Second, efficiency of serving the real economy should be further improved. We need to revitalize the stock of capital, speed up the reduction of surplus capacity and the resolve of unviable enterprises, especially “zombie enterprises”, dealing with the problem of idle asset occupying financial resources and distorting market signals. We should optimize funding increments focusing on serving the country’s key strategies, projects and areas and key projects as well as weak links in the national economy, and achieve a virtuous cycle for the financial system and the real economy. Third, we should actively participate in supply-side structural reforms. We should give full play to the role of financial sector in market clearing to provide services and guarantees for deepening supply-side structural reforms. We need to increase support for the "three rural" problems and small and micro enterprises financing. We should improve the service for accurate poverty alleviation and inclusive financial development. And we need to promote innovation and development of green finance to effectively support the financing needs of green enterprises and projects.
Second, optimize the structure and promote the supply-side structural reform of the financial industry
With the changes in the economic development stages, the aggregate expansion of financial sector alone cannot meet the requirements of development. More needs to be done to optimize the structure from the supply side, reducing ineffective and inefficient supply and expanding efficient supply. The first priority is to maintain a stable and neutral monetary policy stance. It is vital to enhance the role of monetary policy in macro control and local structural adjustment to balance the relationship between stable growth, structural adjustment and risk prevention. It is necessary to strengthen the institutional construction of liquidity management, maintain a reasonable and stable liquidity level, and promote the reasonable growth of credit and social financing so as to create a development-friendly monetary environment. Second, we shall speed up the construction of a multi-level capital market system. It is of utmost importance to capture, in line with the characteristics of new-era financing, the fundamental changes in the financing structure of government sector, corporate sector, financial sector, and resident sector; to better promote the effective connects and coordination between policy-based finance and commercial finance; to better balance the interest of investment and financing entities by coordinating seamless coverage of market mechanisms, legal mechanisms and supervision mechanisms; and to better meet the financing needs of new technologies, new industries, new business and new models. The third priority is to help Fin-tech seek advantages and avoid disadvantages, and facilitate its development in an orderly manner. We should seek comprehensive use of various scientific and technological forces to promote the deep integration of finance and science and technology, and develop diversified, convenient and personalized financial products, broadening the scope of financial services, and improving the efficiency of financial services. The fourth is to enhance the inclusiveness of financial supply innovation. In response to market development, based on the prevention and control of financial risks and effective service of the real economy, financial innovation should be viewed with a tolerant attitude. The management of financial supply innovation should be balanced between directing and prohibiting, slightly tilted to directing.
Third, strengthen supervision and improve the ability to prevent and resolve systemic financial risks
Preventing systematic financial risk events is the bottom line for the high quality development of the financial system. At present, some cross-industry and cross-market financial products with multilayer structure and opaque underlying assets presented serious hidden risks which warrant strengthened supervision. The first task is to improve the regulatory system. In line with the new changes in financial risks, we should take a problem-oriented approach to comprehensively review the regulatory rules and solve the regulatory shortcomings. As for the cross-industry and cross-market financial products, a “penetrating” regulation will be conducted to close regulatory gaps and eliminate regulatory overlaps, while reasonably reducing the compliance costs. The second is to improve the functional regulation system. The role of Financial Stability Development Committee of the State Council needs to be put in full play in the overall coordination and information sharing mechanism of PBC, CBIRC, CSRC and SAFE. The two-pillar framework of monetary policy and macro-prudential policy needs to be further strengthened to allow more synergies and complementation. The third is to lay a solid foundation for supervision and monitoring. The monitoring functions of existing financial infrastructures need to be better utilized; it is necessary to promote comprehensive statistics in the financial industry, encouraging data sharing, avoiding duplicate date collections, effectively monitoring financial operations, and scientifically assessing hidden risks to prevent and resolve systemic financial risks in a forward-looking manner.
Fourth, stick to market orientation and let market play a decisive role in allocation of financial resources
The decisive role of the market in increasing the efficiency of the allocation of financial resources should be enhanced. The first is to continue to promote the liberalization of interest rate and exchange rates. We should continue to cultivate market benchmark interest rates with a view of improving the depth of the financial market, promote pricing benchmarking of government bond yields, improve the market-based interest rate formation mechanism, promote the consolidation of policy benchmark interest rates and market interest rates, and promote the reform of the RMB exchange rate formation mechanism in an orderly manner to increase exchange rate flexibility and enhance the resilience to external shocks. The second is to optimize the transmission channel of monetary policy. We should actively promote the securitization of credit assets and the exchange of credit ABS, improve the price transmission mechanism between the money market, capital market and credit market, and improve the efficiency of fund allocation. We should further urge the financial institutions to improve the internal control system, and increase their capabilities of independent and reasonable pricing and risk management. The third is to improve the liquidity of financial factor market. We should facilitate the factors’ flow among markets by streamlining the relationship of FMIs, strengthen the centralized and unified construction of back-office infrastructure, promote the openness, diversity and liquidity of the front-end platforms, and in turn improve the efficiency of the financial market. Fourth, continue to expand the opening up of the financial industry to the global market. The door to China will only grow bigger and bigger, and the access to financial sector will also be greatly improved. The cross-border interconnection of central depository agencies to promote the interconnection of domestic and foreign markets is a useful complement to the existing opening-up channels. As China's capital market has been included in the international market indices, we should help China's financial information products to go global to firmly maintain the pricing power of RMB assets and enhance the international competitiveness of China's financial market.
Bearing in mind the high-quality development goal, it is a new mandate and opportunity for us to promote the transformation and upgrading of the financial system in the new era. As one of national core financial infrastructure, CCDC will fully implement the requirements of the 19th CPC National Conference, the National Financial Work Conference, and the Central Economic Work Conference. CCDC will adhere to the cause of reform and innovation, and work hard to become a world-class central depository institution and continue to contribute wisdom and strength to the high-quality development of China's finance industry and the national economy.