China Looks to Transform Its Financial Sector

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Jul. 17 – China’s State Council issued the “Guiding Opinions on Financial Support for Adjusting, Transitioning and Upgrading of the Economic Structure (guobanfa [2013] No.67, hereinafter referred to as ‘Opinions’)” on July 5, which reiterate that the government will maintain a prudent monetary policy and a reasonable money and credit supply to support economic restructuring. Detailed information can be found below.

According to the Opinions, China’s economic outlook is generally stable at the moment. Structural problems remain an outstanding issue, however, with capital misallocation continuing to hinder economic restructuring and upgrading.

To support the rebalancing of the economy, the Opinions has put forward the following ten key measures:

  • To implement a prudent monetary policy to keep the money and credit supply at a reasonable level;
  • To guide and promote reforms in key industries and areas;
  • To support the development of micro and small-sized enterprises by integrating financial resources in different sectors;
  • To strengthen credit support to farming and rural development;
  • To accelerate the development of a multi-level capital market;
  • To further promote consumer financial services to boost domestic consumption;
  • To encourage Chinese enterprises to pursue overseas development;
  • To further leverage the guarantee function of insurance;
  • To open more areas for private investment in the financial sector; and
  • To strictly guard against financial risks.

A distinct feature of the issued Opinions is the encouragement of private capital to set up financial institutions, including banks, financial leasing companies and consumer finance companies, that can shoulder responsibilities and risks by themselves, thereby providing wide coverage, differentiated and efficient financial services for the real economy. Specifically:

  • Allowing well-developed and prudently managed rural banks to adjust the shareholding ratio within a certain range;
  • Encouraging private capital to establish financial institutions at their own risks; and
  • Exploring and improving the supervision mechanism of the bank industry.

Moreover, the Opinions provide that financial support will be encouraged for the advanced manufacturing and information sectors, strategically emerging industries as well as the labor intensive industries. Meanwhile, a strict curb on credit and direct financing will be imposed on unapproved projects in industries with severe overcapacity.

In addition, the Opinions require that wealth management products issued by banks are connected to the real economy with tighter controls.

The Opinions have been seen as a sign that China will press on with reforms despite the global economic slowdown.

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