Risk prevention remains the overarching theme of financial work.
Photo by Kuang Da
By AN Zhen
The Central Financial Work Conference, an event that takes place only every five years, was held in Beijing on Monday and Tuesday. The communique emphasized risk prevention and control, innovation within market and rule-of-law frameworks, supply-side reforms and a balanced approach to openness and security. In short, progress through stability.
The conference emphasized the need for the financial sector to serve economic and social development.
Development is best served by a favorable monetary and financial environment, strengthening financial services in key areas and a prudent monetary policy. More financial resources should be innovated, especially among small and medium-sized enterprises.
Efforts to unlock inefficiently held financial resources and improve the efficiency of fund utilization are encouraged.
Better utilization of the capital market demands a better stock issuance registration system and wider equity financing.
Shanghai and Hong Kong must maintain and expand their status as international financial centers.
Improved regulation should bring all financial activities under continuous regulatory oversight, with appropriate action against illegal activities.
A long-term mechanism is urgently required to prevent and resolve local government debt risks. Likewise, the entire real estate industry requires a better regulatory framework to improve macro-prudential management of reasonable financing needs. Financial institutions are to provide various types of financing to support a variety of real estate endeavors.
The National Financial Work Conference is held every five years. The first took place in 1997, during which reforms were introduced to the People’s Bank of China’s organizational structure. The establishment of the Central Committee of the Communist Party of China’s Financial Work Commission was approved, and vertical leadership was implemented for the party organization of financial institutions. Special government bonds were issued to inject capital into state-owned commercial banks, and a number of asset management companies were established.
In February 2002, the second conference was held. The central government decided to establish Central Huijin Investment Limited, which played a leading role in the restructuring and listing of China’s banking industry. The conference also accelerated a new round of reforms for state-owned commercial banks, providing key policy support for China Industrial and Commercial Bank, China Construction Bank, and Bank of China in their efforts towards shareholding reform and overseas listings. It also promoted the comprehensive implementation of the “five-level classification” system for commercial bank loan quality. Additionally, the Central Financial Work Commission was dissolved, and replaced by the China Banking Regulatory Commission, and a leadership group for state-owned bank reform was established to plan and coordinate reform measures.
In January 2007, a third conference convened, highlighting strengthening financial regulation, advancing state-owned bank reform and rural financial reform, developing securities and insurance markets, enhancing macroeconomic control, and introducing new topics such as promoting the financial industry’s opening to the outside world, emphasizing foreign exchange reserve management, and developing the bond market.
In January 2012, the fourth highlighted the need to relax market access, encourage, guide, and regulate private capital’s entry into the financial services sector, and their participation in the restructuring and capital increase of banks, securities, and insurance institutions. It called for deeper market-oriented reforms in the new stock issuance system, improved issuance, delisting, and dividend distribution mechanisms, strengthened stock market supervision, and the promotion of coordinated and healthy development of primary and secondary markets. The conference reiterated the importance of serving the real economy, guiding the market-oriented allocation of financial resources, coordinating innovation with regulatory development, treating the prevention and resolution of financial risks as the lifeline of financial work, and adhering to a principle of gradual, safe, and mutually beneficial openness.
In July 2017, the fifth National Financial Work Conference was convened. It introduced four principles for financial work: returning to its essence, optimizing the structure, strengthening regulation, and being market-oriented. The State Council Financial Stability and Development Committee was established. The conference called for deeper reforms in the formation mechanism of the renminbi exchange rate, steady progress in the internationalization of the renminbi, and gradual realization of capital account convertibility.
Following the conference, China established the State Council Financial Stability and Development Committee, restructured the China Banking and Insurance Regulatory Commission, expanded and strengthened the functions of the People’s Bank of China, and formed a new financial regulatory framework.