By Chen Daofu, DRC

2018-7-27

This year marks the 40th anniversary of China’s reform and opening up. Against such a backdrop, we need to take an objective stand to make an overview of the past achievements, ponder over the roadmaps and concepts relating to reform and opening up and look into the future to chart the course for further growth.

China has established an initial framework for modern financial system. China’s financial industry is exploring a more prudent, progressive and pragmatic path for opening up and for the liberalization of financial prices. Up to now, China has, in light of the national conditions, constructed a relatively complete set of financial institution and market system, a regulatory framework focusing on institution and sector regulation and a quantitative regulation-oriented monetary control system. Moreover, a macro financial risk prevention and response system has also been set up initially. Through discussions about the nature of China’s economy, whether it was a planned one or a market one, China realized the separation between finance and banking (People’s Bank of China), followed by the split-off of the specialized banks from the central bank, completed the transformation from specialized banks to commercial banks, with policy-backed banks becoming relatively independent in terms of financial management, and gradually set up policy-based financial institutions. In the course of the debate on some issues whether they were capitalism or socialism in nature, China made pilot practice and established a special stock market to access financing for state-owned enterprises (SOEs) and retail investors. For a quite long time, people argued about whether it was “congenital deficiency” or “acquired deficiency” for the development of the capital market. As for the argument on whether the first priority needed to be given to the institution or the market, due to the increased number of specialized financial institutions, people began to try some new approaches for the construction of financial market, the development of institutional investors and various intermediary agencies, and the advance of a multilevel capital market. As for the different opinions about the segregation of financial businesses and the regulation based on separate lines of work or comprehensive management and comprehensive regulation, the experience of financial institutions and regulatory departments in China has proved the historical fact that a lasting unity will be divided and a lasting division will be united.

Some deficiencies and challenges still exist in China’s financial system. Viewing from the perspective of phenomena, there are three levels of separation in China’s financial system through the course of transformation: the separation between real economic demand and financial supply, the separation between financial operation and financial governance (micro-management, financial regulation and macro-control), as well as the separation between financial functions and financial ability cultivation. As for financial operation foundation, its market-based operation has not been established in China. In addition, China’ financial development faces many challenges. China’s economic development is in a major transitional period, and the economic operation has undergone profound changes. It is a long-term challenge for China’s financial system on how to provide financial services relevant to the economic transformation, especially on how to regain social trust with appropriate institutional design.

A safe, efficient and inclusive financial system should be built to serve the real economy. In changing China from a financially weak country to a financial power, we need to flesh out the present system through financial reform which involves the reconstruction of financial factors, the evolution of the system and the transformation of financial infrastructure. Instead of referring to foreign experience, we need to have new ideas and cultivate new mode in light of China’s tradition, the practical environment and financial practices. We need to face up to the puzzled issues, overcome the mindset of reasoning from conception to conception and take a problem-oriented approach. While addressing the specific problems, we need to seek truth from facts, break through the concept constraints, remain true to our original aspiration and keep on blazing new trials.