This is the full text translation of an article originally published on the Xinhua website, with the title ‘Deepen Financial Reform, Promote the Healthy Development of an Economic and Financial Virtuous Circle’ (here) immediately after the July 14-15 National Financial Work Conference, and reposted on the Hubei Credit website with a slightly different title. The article is useful to get a sense of the reform measures China intends to adopt in the financial sector, and of their rationale.
National Financial Work Conference Sends an Important Signal
The Construction of a Social Credit System Must Be Strengthened
The National Financial Work Conference was held in Beijing from 14th to 15th July.Xi Jinping, the General Secretary of the CPC Central Committee, the President of the People’s Republic of China and the Chairman of the Central Military Commission attended the meeting and delivered an important speech. He stressed how finance is an important core competitive force of country, how financial security is an important component of national security, how the financial system is an important foundational system of the country’s economic and social development.
Xi Jinping stated how Party leadership over financial work must be strengthened, the main work of ensuring progress while maintaining stability must be adhered to, the rules of financial development must be followed, and a close focus on the real economy shall be kept, in order to prevent and control financial risk, deepen the three tasks of financial reform, innovate and improve financial regulation, establish a robust modern financial enterprise system, improve the financial market system, promote the construction of a modern financial supervision framework, accelerate the transformation of the mode of financial development, establish a sound financial rule of law, guarantee national financial security, promote a good circulation in economy and finance, and their healthy development.
Standing Member of the Politburo of the CPC and Premier of the State Council Li Keqiang delivered a speech. Standing Members of the Politburo of the CPC Yu Zhengsheng, Wang Qishan, and Zhang Gaoli attended the meeting.
Since the 18th Party Congress, the development of financial reform has made great achievements.
In his speech, Xi Jinping stressed how, since the Party’s 18th Congress, China’s financial reform and development has made new major achievements.The financial industry maintains a rapid development, financial products are more abundant day after day, financial services are universally used, financial reform is proceeding in an orderly way, the financial system is continuously improving, the internationalization of Renminbi and the dual opening up of finance has made new progress, financial supervision has improved, and the bottom line capacity of defence to avoid the occurrence of systemic financial crises has been strengthened.
Four important principles should be grasped in financial work.
Xi Jinping pointed out how to perform financial work well the following four important principles should be grasped.
First, return to the source, and comply with serving economic and social development.
The starting point and the foothold of finance must be serving the real economy. Finance should comprehensively improve the efficiency and level of its services, allocate more financial resources in key areas and weak links of economic and social development, better meet the financial needs of the people and of realizing economic diversification.
Second, optimize the structure, improve the financial market, financial institutions, and financial products. We should insist on quality first, guide the development of the financial industry in harmony with economic and social development, promote facilitation in financing, reduce the costs of the real economy, improve the efficiency of resource allocation and guarantee that risk be controlled.
Third, strengthen supervision and improve the ability to prevent and to diffuse financial crises. The construction of relevant laws and regulations must be accelerated by taking strengthening financial supervision as the focus, and the prevention of financial risk as the bottom line, and the corporate governance structure of financial institutions should be improved, the macroeconomic management system must be strengthened, functional supervision must be strengthened, and attention to behavioral supervision should be reinforced.
Fourth, follow market orientation, and bring into play the market’s decisive role in the allocation of financial resources. Uphold the direction of the reform of the socialist market economy, deal well with the relationship between government and market, improve market restraint mechanisms, improve the efficiency of financial resources allocation. Strengthen and improve the government’s macro-economic control, improve market rules, strengthen discipline.
Serving the real economy is the vocation of finance.
Xi Jinping stressed how finance is the lifeblood of the real economy, and how the vocation of finance, the purpose of finance is serving the real economy, and how finance is also a fundamental measure to prevent financial risk.
We should carry out the new idea of development, establish the idea of quality first, efficiency first, pay more attention to reorganizing reserves, incrementing optimization, and converting the kinetic energy of the supply side.
The development of direct financing must be put in an important position, and a multi-level capital market system should be formed with a comprehensive financing function, a solid foundation, effective market supervision, and protection of the legitimate rights and interests of investors.
The structure of indirect financing should be improved, the strategic transformation of state-owned banks should be promoted, small and medium banks and private financial institutions should be developed.
The insurance industry’s functions of long-term, stable risk management and protection should be promoted.
A universal financial system should be built, the financial services of micro-enterprises, the three rural enterprises and of remote areas should be strengthened, targeted poverty alleviation through finance should be promoted, and the development of a green finance should be encouraged.
A reduction of operating costs by financial institutions should be promoted, regulatory links of intermediation services should be cleaned-up, a disguised increase of real economic and financial capital should be avoided.
Behaviors leading to a serious disruption of the order of the financial market should be rectified
Xi Jinping pointed out how preventing systemic financial risks is an eternal theme of financial work.
The taking of initiatives to prevent and solve systemic financial risks must be placed in an even more important position, a focus shall be placed on scientific prevention, early identification, early warning, early detection, early action, on the solution of risk in major areas, a focus shall be placed on improving the defence line of financial security and on emergency risk management mechanisms.
We should promote economic deleveraging, firmly implement a prudent monetary policy, and deal well with the relationship among steady growth, structural adjustment and total control.
The most important point shall be reducing leverage on state owned enterprises, and deal with the work on “zombie enterprises”. Local Party committees at all levels and governments should set up a correct view of their achievements, severely control the debt of local governments, promote life-long accountability.
Behaviors that seriously interfere with the order of the financial marked must resolutely be rectified, financial market transactional behaviors should severely be standardized, the combination of financial management and production should be standardized, supervision over internet finance should be strengthened, and the responsibility of financial institutions to prevent risk should be reinforced.
The construction of a social credit system should be strengthened, and a financial rule of law system in line with the conditions of our country should be perfected.
The State Council Financial Stability Development Commission shall be established.
Xi Jinping stressed the need to firmly grasp financial reform.
The system of financial institutions should be optimized, management of state-owned financial capital should be improved, and the mechanism of foreign exchange market should be perfected.
A modern financial enterprise system should be improved, corporate governance structure should be perfected, ownership structure should be optimized, an effective incentive and restraint mechanism should be established, the construction of risk control mechanisms should be strengthened, and external market restraints should be reinforced.
Coordination of financial supervion, and weak points in supervision should be strengthened. The National Financial Stability Development Committee of the State Council shall be established, to strengthen the People’s Bank macro-prudential management and systemic risk prevention functions. Local governments should strengthen their responsibility for the management of risk within their territorial jurisdiction in accordance with central unified rules, on the premise that the main authority of the Centre in financial management must be upheld.Financial management departments must strive to cultivate the spirit of responsibility to the greatest possible extent, as well as a spirit of supervision where one dares to supervise, skillfully supervises, and strictly demands accountability, and they should form a climate of severe supervision where the delayed discovery of risk is dereliction of duty, and the delayed reporting and management of risks that have been discovered is a failure to perform one’s duties.
Risk monitoring, early warning, and early intervention mechanisms should be improved, the overall supervision over, and the interconnection of the financial infrastructure should be strengthened, and th sharing of comprehensive statistics and supervision information should be promoted.
Broadening the opening-up of finance.
Xi Jinping pointd out that the opening-up of finance should be broadened.
Reform of the Renminbi exchange rate formation mechanism should be deepened, the internationalization of the Renminbi should be steadily promoted, and the convertibility of capital should be steadily realized.
The opening-up of the financial industry shall be actively and steadily promoted, the order of opening-up should be arranged rationally, and the establishment of a mechanism to protect the interests of consumers of financial products, enhance an orderly financial competition, and help prevent financial crieses should be accelerated.
System designs relevant to the promotion of financial innovation in the construction of the One Belt One Road should be improved.
The Central Committee’s unified leadership pver financial work should be upheld.
Xi Jinping stressed how financial work in the new circumstances should uphold the unified leadership of the Central Committee of the Party, ensure the correct developmental direction of financial reform, and guarantee the state’s financial security.
The requirements of comprehensively strictly ruling the Party shall be implemented, an organized group of leaders over the financial system shall be established, key posts are to be strengthened, as well as supervision over major staff, particularly leaders.
The construction of the Party in enterprises shall be earnestly grasped, education in ideals and beliefs should be strengthened, education in the nature of the Party should be strengthened, education to discipline should be reinforced, the construction of the Party’s work style and clean government should be reinforced.
We should vigorously cultivate, select and use human resources in the financial sector with solid political skills, a good work style, professional skills, and pay particular attention to the training of high-level financial human resources, and diligently construct a pool of human resources of high moral quality, possessing both moral integrity and professional capability.
Finance is a heavy weapon of the state.
In his speech, Li Keqiang pointed out that we should diligently study, comprehend and carry out the spirit of the important speech delivered by Secretary General Xi Jinping at this meeting.Finance is a heavy weapon of the state, and is the lifeblood of the national economy.
Serving the real economy must be taken as the main goal, preventing and diffusing systemic risk should be taken as the core objective, deepening financial reform should be taken as the fundamental driving force, and a virtuous cycle of promoting economy and finance should be promoted.
The thought and methods of financial regulation shall be innovated, a sound monetary policy shall continue to be implemented, an adequate growth of monetary credit and a stable market liquidity should be guaranteed, finance’s service to the real economy should continuosly be improved.
The financial sector should enthusiastically be developed, weak links in economic and social development such as micro-enterprises, the three rural enterprises and targeted poverty alleviation through finance should receive a strong support, a focus shall be placed on resolving difficulties in financing and the problem of expensive financing.
Financial support to an innovation-driven development, the transformation from old to new, and to the ‘two innovations’ to support employment should be strengthened.A good job shall be done in the national major development strategy, major reform initiatives, the construction of major projects in financial services.
Capital markets’ function to serve the real economy should be strengthened, equity financing should be strengthened in an active and orderly way, the proportion of direct financing should be increased.
The risk protection function of the insurance market shall be expanded.
The spatial allocation of financial resources and of financial institutions shall be optimized, small and medium financial institutions shall be vigorously developed, the sustainability to the real economy of financial services shall continuously be improved, and a focus shall be placed on controlling what is false.
The three defense lines of a secure market access, early intervention and early management should be consolidated, the prevention of risk should become a first line, responsibility for financial risk should be made robust and become a mechanism, the stable operation of financial markets should be ensured, de-leveraging should be steadily and actively promoted, the reform of state-owned enterprises should be deepened, the most important is reducing the leverage ratio state-owned enterprises, an effective management of points of financial risk, the prevention of moral hazard, and the bottom line of defense against the occurrence of systemic risks should be upheld.
We should carry forward the reform of the financial supervision system starting from the national conditions of our country, strengthen the authoritativeness and effectiveness of financial supervision, strengthen the diffusion of professional uniformity in financial supervision, all financial departments should be supervised, and promptly identify and resolve risks.
We should uphold unified regulation by the Centre, put pressure on supervision responsibility by local areas, strengthen the accountability for financial supervision.
We should adhere to the direction of autonomy, orderliness, equality, safety, and steadily expand the financial system in two directions.
The rule of law, credit, and human resources guarantees to the stability of the reform of the financial system should be strengthened, a good ecology of finance should be created, high and sustained rates of economic growth should be promoted by high quality and efficient financial services, and strides towards a mid-to-high-level should be made.
Thought shall be resolutely unified towards the spirit of the important speech of General Secretary Xi Jinping.
Member of the Standing Committee of the Politburo of the CPC, and Deputy Prime Minister of the State Council Ma Kai, in his concluding remarks, urged all regions and departments, particularly the financial system, to earnestly unify their thought on the spirit of the important speech of General Secretary Xi Jinping, and on the Centre of the Party’s strategic decisions on conducting financial work, to strengthen their sense of responsibility and of mission in performing financial work well, to tightly revolve around serving the real economy, to control financial risk, to deepen the three tasks of financial reform, to define work tasks based on the reality of all regions and departments, to determine the subjects of responsibility, strengthen the construction of systems, raise the quality of the team, promote the healthy development of China’s financial industry, ensure that the Party’s line, direction, and policies in the financial sector are conscientiously implemented.
Participants and Speakers
The main responsible comrades of Beijing Municipality, Fujian province, the People’s Bank of China, CBRC, China Securities Regulatory Commission, China Insurance Regulatory Commission, ICBC delivered speeches at the meeting.
Leading comrades from the Standing Committee of the Politburo of the CPC, the Central General Secretariat, the Standing Committee of the National People’s Congress, as well as the presidents of the State Council, the Supreme People’s Court, the Spreme People’s Procuratorate, the National Political-Consultative Conference attended the meeting.
The responsible comrades of all provinces, autonomous regions, municipalities directly controlled by the Centre, cities with independent budgetary status, the Xinjiang Production and Construction Corps, relevant central and local departments, relevant people’s organizations, relevant units in the financial system, relevant departments in the Central Military Commission and in the People’s Armed Police attended the meeting.