Sustained reforms to bolster real economy

Sustained financial reforms and opening-up measures will bolster the real economy and prevent financial risks in China, according to a top regulatory body.

China has reached the phased objectives in its battle to prevent and resolve major financial risks, said a statement issued by the Financial Stability and Development Committee under the State Council, after a meeting on Thursday, chaired by Vice-Premier Liu He.

The previously issued opening-up policies have taken effect, boosting market confidence and supporting stable economic growth. Measures, in the next step, should balance the relationship between stabilizing growth and preventing risks, and enhance countercyclical adjustments, it said.

The Committee called for further reforms in areas like capital markets and medium and small banks. The reforms should guide the healthy development of the private fund industry, while financial inclusion and fair competition needs to be encouraged.

It also highlighted that commercial banks, especially the medium and small-sized ones, need to increase capital through multiple channels.

Zhang Xuechun, deputy director of the Research Bureau of the People's Bank of China, the central bank, said on Friday that financial reforms will focus on developing the multiple-level equity and bond markets, to change the current situation as the financial system is heavily reliant on bank funds.

"The most significant aspect of China's monetary policy is to improve the transmission of monetary policy," Zhang said at the China Finance Annual Forum 2019 & Financial Market Meeting.

She suggested that regulators release more information about small-and medium-sized commercial banks, let the market gauge high-quality banks and better assess risk premiums.

China has the ability to spur economic growth by leveraging monetary policy, but the monetary policy cannot be abused. "It is easy to inject liquidity (into the market) but difficult to collect it back."

The central bank will also deepen the market-oriented interest rate reform, Zhang said.

Li Yang, head of the National Institution for Finance and Development (NIFD), said that the monetary policy needs to anchor the producer price index (PPI) at the current situation and prevent deflation, as the rising consumer inflation was fueled mainly by pork prices.

Investment needs to be encouraged by reforming the macroeconomic policy framework, which is the priority to stabilize economic growth, said Li. "Another important thing is to prevent financial risks and to curb the leverage level."

According to Thursday's top-level financial regulatory meeting, a long-term mechanism to prevent, resolve and dispose risks should be improved, aiming to stabilize the financial system, as well as sustain the economic and social stability, the statement said.

The Committee has deployed reform measures, including strengthening the function of serving the real economy, improving the fundamental mechanism of the capital market, enhancing financial governance and further opening up the financial industry.

The country's financial regulators have pushed the commercial banks to increase capital, dispose nonperforming loans and speed up mergers and acquisitions to prevent risks, given the concern on economic downside risks.