Economy: Is China Ready to Reform its Financial Sector?

01/08/2019

Li Keqiang: “China will intensify pilot regional financial reforms to enhance the role of finance in supporting reform, opening-up and economic development”

 

Is China ready to reform its financial sector? Maybe. Recently, President Xi Jinping underlined the need “to deepen supply-side structural reform in the financial sector and provide well-targeted financial services to the industrial, market, regional development and green development systems in building a modernized economy”.  Moreover, Premier Li Keqiang said that “pilot reforms in selected regions should provide experience for a more comprehensive deepening of reform. The pilot financial reforms and innovations should test the waters for further financial reform” as China Daily reported.

 

The Wednesday meeting urged employing multiple tools in a coordinated way as required by macro policy to effectively bring down real interest rates, support the development of small and medium-sized banks, and lower financing costs for businesses, especially for micro, small and private firms. Local governments should fulfill their due responsibilities while averting financial risks.

 

Beijing to deepen pilot regional financial reform. The Chinese government puts great emphasis on financial support for reform, opening-up and innovation at the regional level.

 

“The financial system is of a macro nature that affects almost all facets of the economy. Our first-order task is to ensure that the macro policy is well calibrated and implemented to continuously bring down real interest rates and financing costs for businesses, especially small and medium-sized firms,” Premier Li said.

PRC’ State Council stressed the need to establish a working mechanism for regional financial reforms that allow dynamic adjustments. Thus, any pilot reform that delivers few concrete results, or seriously deviates from the reform objectives, must be promptly redressed or halted.

“Regional financial reforms and innovations need to follow macro policy and serve the larger interests. Local governments must play a part and fulfill their due responsibilities in supporting the growth of small and medium-sized companies and coordinating the macro policy with the needs of regional development,” Premier Li said.

 

Beijing is putting great emphasis on financial reform. After the Shanghai Stock Exchange’s STAR Market trading started on Monday 22nd, China is ready to be a game-changer in stock-market sector. As we know, the new board is not only a key initiative by PRC to provide domestic funding support to Chinese hi-tech and innovative start-ups, but is China’s last attempt to regulate finance sector.   Just eight months after Chinese President Xi Jinping unexpectedly announced plans for a new share board for the freer trading of technology stocks, the NASDAQ-stile board is ready to change, and regulate, finance sector in China.

Beijing hopes new NASDAQ-style board will persuade promising local companies to list at home rather than in the US while also providing a test bed for broader stock market reforms. Over the past 20 years, Chinese tech companies like Baidu, Sina, JD and Alibaba have chosen New York (or Hong Kong) for their initial public offerings.
Sixteen Chinese companies have listed in the US so far this year, with more in the pipeline, attracted in part by the prospect of escaping the clutches of Beijing’s capital controls. The most crucial change is the adoption of a registration – base listing system, which replaces the pronged regulatory vetting that kept many companies waiting for more than a year before listing. 

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