Speech by CBRC Vice Chairman WANG Zhaoxing at Lujiazui Forum

(June 20, 2017)

 

Distinguished Secretary Han,

Governor Zhou of PBOC,

Mayor Ying of Shanghai,

Ladies and Gentlemen:

 

Good morning. I’m delighted to be here, by the Huangpu River, to this rapid developed international financial cente--Shanghai, and participate in the Lujiazui Forum 2017. On behalf on the CBRC and Chairman GUO Shuqing, I would like to extend my warmest congratulations on the this forum, and express my heartfelt thanks to distinguished fellow guests who have greatly support the work of the CBRC and the reform and development of China’s banking industry.

 

Take this opportunity, I would like to share my idea about China’s current financial reform and development in the following three aspects: first, a global perspective; second, an economic view, and third, to realize financial stability and dynamism, further deepened financial reform is required.

 

Firstly, we are now entering an era of globalization where China’s economy and financial industry have greatly integrated with the rest of the world. Under this background, China’s financial reform, opening-up and development must have a broader and higher global perspective.

 

The theme of the Forum 2017 is “financial reform and steady development from a global perspective”. I think this is very profound and my understanding goes by the following three points:

 

First, financial industry in China is highly open, and has integrated into the process of globalization. China’s financial sector is interconnected with the financial industries worldwide, and their connection is getting closer and broader.

 

Second, China’s financial stability is highly related with global financial stability. With the process of RMB internalization, China’s banking industry has speeded up its internationalization pace, and RMB exchange rate and capital account reforms have been pushed forward. China, as the largest capital-importing country and largest capital-exporting country at the same time, its large commercial banks have been listed as the global systemically important banks (G-SIBs) which play a crucial role in safeguarding global financial stability and formulating global financial standards.

 

Third, under the background mentioned above, we must have a broader mind to analyze and facilitate our financial reform and development. At the same time, comprehensive consideration of all relevant factors, both home and abroad, is required to strengthen the top-level design and China’s financial reform plan.

 

Next, China’s financial reform and development not only require a global perspective, but also require an economic vision. According to the principle of Marxist economics, finance and economy are interacted. President Xi inherited and developed this principle and made a precise conclusion of “financial dynamism and stability contribute to economic dynamism and stability.” Meanwhile, President Xi put an emphasis on financial security and regarded financial security as a cornerstone and safeguard of economy security. My understanding is as follows:

 

First, economy is the basis of finance, and the prosperity and decline of economy decides the wellbeing of finance. Without the sound basis of economy, finance hardly meets its prosperity; vice versa, financial prosperity without a sound economy basis will become bubbles. At the end, these bubbles will lead to financial crisis.

 

Second, the sound development of the economy is the starting point and objective of financial reform and development. All financial reform and innovation should serve the sound and sustainable development of economy and strengthen motivation and capability to support real economy. In general, compared with the objective needs of the sound development of the economy, China's financial reform is not too fast, but relatively lagging behind; and our financial innovation is not too much or excessive, but relatively inadequate. We cannot stop and sway our ongoing financial reform and innovation because of some financial chaos and risks. On the contrary, we should strengthen financial regulation and manage financial chaos. The control of financial risks is not contradicting to deepening financial reform and financial innovation; they are interconnected.

 

Third, financial security and stability is the premise and safeguard of sound economic development. Without financial security and stability, the sound and sustainable development of economy cannot be achieved. The 2008 global financial crisis brought severe impact and damage to the world economy, which resulted in the global economy undergoing a slow recovery over a decade. We need to learn a lesson from it and to put in place sound financial systems and mechanisms, safeguard financial security and stability, and ensure healthy economic development.

 

At present, China's financial industry as a whole is safe and stable, and take the banking sector for instance, the proportion of NPLs is still at a low level, and the risk resistance capacity is very strong. Now, NPL provision coverage ratio of China’s banking industry remains above 170% and capital adequacy ratio (CAR) above 13%, which are higher than global standards. At the same time, liquidity and profitability in banking industry remain stable. But we need to notice that financial industry is strongly pro-cyclical. Therefore, in economic downward cycle and structural adjustment, the accumulation of some financial risks at the early stage will continue to expose, and there will be some new risks. In this way, we must be aware of and effectively guard against those risks..

 

Fourth, we should strengthen supervision, continue de-leveraging and combine risk prevention with deepening supply side structural reform. The continuous deepening and the success of supply side structural reform and the adjustment of economic structure will finally realize sound development of economy and stability of financial sector.

 

Last but not least, to achieve the concept of “financial dynamism and stability contribute to economy dynamism and stability” proposed by President Xi requires deepened reform. Through deepening reform and optimizing systems and mechanisms, we could effectively prevent financial risks, inspire financial innovation and develop new motivation and vitality to better serve economic development. I would like to propose three ideas concerning next steps of reform.

 

First, we should build a highly efficient corporate governance system, risk control system, evaluation and assessment system, incentive and constraint system and business innovation system in banking industry through deepening reform. We should build sustainable and sound financial strategy and development model, make banking industry and financial institutions play crucial roles in preventing and controlling risks and providing innovative services to support economic development. Furthermore, the banking industry and financial institutions should become pillars in the market competition, financial resource allocation and financial innovation so as to control risk and safeguard financial security.

 

Second, we should build a scientific and effective marco prudential financial system with the features of counter-cyclical and dynamic regulation in order to achieve the coordination and cooperation among fiscal policy, monetary policy, credit policy and regulatory policy. By establishing a macro financial management system with counter-cyclical features and reasonable interest rate, credit, provisions, capital and market liquidity, bubbles and financial crisis could be effectively controlled.

 

Third, we should establish a sound and efficient financial regulatory system, including financial regulatory policies and financial regulatory standards of a unified system, where institutional supervision, functional supervision, shadow banking supervision, market supervision and financial consumer protection are coordinated and fully covered. We should establish a financial data and information sharing system as well as an effective disposal and resolution system of financial risks, and build a regulatory system which can promote fair competition and benefit financial innovation, and which not only draws on international regulatory standards but also meets the actual demands in China. At the same time, efforts should be made to build a financial safety net that to protect depositors' rights and avoid moral hazards, as well as a performance evaluation and accountability system for supervisors. The regulatory authorities should have adequate regulatory resources and methods to effectively enforce regulation, prevent regulatory loopholes and overlaps, improve the financial rules and regulations, crack down on illegal financial activities and financial fraud, so as to maintain financial stability and sound economic development.

 

I wish this forum a complete success and wish you all success in your work. Thank you.

 

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