China will enhance efforts to build a strong and efficient financial industry, which will empower the country’s high-quality growth and modernization drive after the Central Financial Work Conference stressed the strategic importance of the sector. The conference, which concluded on October 31, outlined steps to build up the country’s financial competitiveness, signaled more efforts to optimize financial supervision to prevent and defuse risks, and will boost market confidence, experts said, adding that more detail-oriented policy measures and tools are expected to be announced. President Xi Jinping delivered key remarks at the two-day conference, laying out plans for the financial sector. The gathering of top financial policymakers came after China reshaped its financial regulatory architecture earlier this year. The country currently faces growing global geopolitical uncertainties and a tepid economic recovery, which are intertwined with government debt issues and a sluggish property market after three years of the Covid-19 pandemic.
“China must build a strong and efficient enough financial industry to ensure the financial stability and high-quality development. That, to some point, will determine the outlook and global competitiveness of the Chinese economy over the next decades,” said Zhang Yansheng, Chief Researcher at the China Center for International Economic Exchanges. He advocated reforms and opening-up in the financial sector and the decisive role of market forces in allocating financial resources, which he said were crucial to boosting the high-quality development. Noting that finance is the lifeblood of the national economy, conference participants said that problems including low efficiency, hidden economic and financial risks, and a relatively weak supervisory and governance capacity need to be solved. The meeting called for vigorous efforts to create a sound monetary and financial environment, while stepping up quality financial services for major strategies, key areas and weak links. It said that a prudent monetary policy should be maintained, and called for a greater focus on cross-cyclical and counter-cyclical adjustments and developing monetary policy tools.
Chen Daofu, Deputy Director of the Research Institute of Finance, which is part of the Development Research Center of the State Council, said the meeting sent a signal that efforts will likely be accelerated to develop a modern finance system with Chinese characteristics, where market-oriented and law-based reforms will be advocated. He expects that new structural monetary tools are likely to be launched so that more financial resources can flow into the areas of technological innovation, advanced manufacturing, green development and SMEs. Liu Xiaochun, Vice President of the Shanghai Finance Institute, pointed out that the meeting called for developing finance for science and technology, green finance, inclusive finance, pension finance and digital finance. Those areas are key for China to pursue high-quality economic development and switch to a new growth model, Liu said.
As of the end of September, outstanding yuan-denominated loans issued by financial institutions totaled CNY234.59 trillion, up 10.9% year-on-year. Loans to sectors including green development, science and innovative enterprises, and inclusive finance increased relatively fast. Chang Haizhong, Executive Director of Corporates at rating agency Fitch Bohua, said the central bank may further encourage banks to increase credit or loans flowing to these areas. The meeting also emphasized the need to comprehensively strengthen financial supervision and effectively forestall and defuse financial risks, including efforts to “optimize the debt structure of the central and local governments” and “promote the virtuous development cycle between the financial and the property sectors”. Zhang Ming, Deputy Director of the Institute of Finance and Banking at the Chinese Academy of Social Sciences (CASS), said that local governments are expected to avoid issuing large-scale debts to finance economic growth, and financing for public welfare projects with a large capital scale, slow turnover and low investment returns will become more rational in order to avoid risks.
The Central Financial Work Conference made it clear three categories of projects will be prioritized in the development of property finance. They are projects mainly meeting inelastic demand, projects for improved living requirements and government-subsidized projects. The conference said each city should make good use of its local policy tools to meet inelastic demand as well as demand for improved housing. Government-subsidized housing should be built at an accelerated pace so as to create a new development model for the real estate market.
A report from the People’s Bank of China (PBOC) stated that the decline in China’s real estate loans appears to have stabilized as of the end of September as it stayed at the level of August. The outstanding value of China’s yuan-denominated real estate loans edged down 0.2% year-on-year to CNY53.19 trillion by the end of the third quarter this year, PBOC data showed, as reported by the China Daily.
