Li Yang: China has the world's second largest stock market, but a non-technology company like Moutai has the largest market capitalization丨2023 China Listed Company Investment Value Summit & China Investment Fund Summit
On December 3, the 2023 China Listed Companies Investment Value Summit and China Investment Fund Summit (hereinafter referred to as the "Double Summit") was held in Beijing. With the theme of "Innovation-driven, Value Navigation", the "Double Summit" aims to explore how listed companies can promote their own development through innovation and value-driven, and lead the new trend of industry development.
At the meeting, Li Yang, member of the Chinese Academy of Social Sciences and chairman of the National Finance and Development Laboratory, shared the theme of "China's Financial Reform Enters a New Stage". Based on the comparative analysis of the financial strength of China and the United States, he discussed the goals and tasks of building China into a financial power from eight aspects.
He said that in terms of the size and structure of financial institutions, China's current scale is about 70% of that of the United States, considering that China's financial sector has grown from scratch and is now so large-scale, it should be said that the development is very good, but there are structural problems, such as the lack of long-term funds; from the perspective of the development of financial technology, China probably ranks third in the world, the first is the United States, and the second is the United Kingdom; in terms of the size and structure of the financial market, China has the world's second largest stock market, but the structure is not very reasonable.
Li Yang said: "The top 10 companies in the U.S. stock market are Apple, Amazon, United Health, etc., all of which are high-tech enterprises, and China's top 10 are traditional financial institutions such as workers and peasants, and traditional resource-based enterprises such as PetroChina and Sinopec, all of which are traditional enterprises, and even non-technological enterprises such as Moutai, and this situation must be changed." ”
At the same time, Li Yang also pointed out that the wealth owned by the Chinese government has far exceeded that of the US government, which is the reason why China can "sit firmly in the Diaoyutai despite the wind and waves", and where China's economic and social resilience lies.
At the end of October this year, the Central Financial Work Conference was held in Beijing. The meeting pointed out that finance is the blood of the national economy and an important part of the country's core competitiveness, and it is necessary to speed up the construction of a financial power, comprehensively strengthen financial supervision, and improve the financial system.
Talking about the goal of "building a financial power," Li Yang believes that China's factors, which are characterized by a history of 5,000 years of civilization and the leadership of the Communist Party of China, are incomparable to other countries, and in other comparable fields, the gap between China and developed economies and international standards is gradually narrowing. In the next five years, China's financial system should complete changes in eight areas, including a more complete modern central bank system and a steady increase in the proportion of direct financing, and by 2035, form a highly adaptable, competitive, and inclusive financial system with Chinese characteristics, and basically achieve the goal of becoming a financial power by the middle of this century.
Li Yang said: "China's financial system has fully realized from scratch, from weak to strong. The future is full of hope. ”
The following is a transcript of Li Yang's speech at the "Double Summit" of China's listed companies, edited and arranged by Titanium Media APP:
Distinguished Chairman Koo, distinguished guests, ladies and gentlemen, good afternoon!
After the Central Financial Work Conference was held in October this year, we can all clearly feel that the basic logic, main tasks, development direction and key areas of China's financial operation have undergone significant changes. We must conscientiously study Xi the various documents of this meeting and the following ones, thoroughly understand the spirit, and keep up with the situation.
Before analyzing the contents of this central financial work conference, we must first know where we come from, what our past is like, and what work we have done.
1. Financial system with Chinese characteristics: from scratch
In 1978, the First Session of the Fifth National People's Congress decided that the head office of the People's Bank of China would be separated from the Ministry of Finance, and the construction of China's modern financial system officially began.
In 1983, China began to set up a central bank system. The State Council decided that the People's Bank of China would exclusively exercise the functions of the central bank of the state, and at the same time, the industrial and commercial business of the People's Bank of China would be separated and handed over to the newly established Industrial and Commercial Bank of China, which would specialize in general industrial and commercial credit business.
In 1990 and 1991, the Shanghai and Shenzhen stock exchanges were established respectively. The concepts of market economy, such as capital and capital markets, have officially entered the socialist system with Chinese characteristics.
In the 90s, we established the basic framework of the modern financial system, including the central bank system, the financial macroeconomic regulation and control system, the financial organization system, and the financial market system.
In 1994, the state carried out the first reform of the exchange rate system, and decided to merge the trade exchange rate, the financial exchange rate, the adjustment exchange rate and the black market exchange rate, and implement a single managed floating exchange rate system.
During this period, a series of laws and regulations related to China's financial operations were passed and implemented, such as the People's Bank of China Law, the Commercial Bank Law, the Insurance Law, and the Bills Law, which brought the development of China's financial system into a market-oriented and legalized track.
However, due to the rapid development, it is inevitable that there will be a mixture of mud and sand. Therefore, in 1997, the financial industry carried out its first large-scale governance and rectification. So far, our financial system has undergone several overhauls, and one of the reasons is that it is moving too fast.
In the 90s, China's modern financial system was initially built and improved, and there are several key events that can prove it.
The first is that the central bank completely separates its industrial and commercial business. As everyone knows, the central bank is a bank of banks, which only handles business for banking institutions and does not directly handle business for industrial and commercial enterprises; it is the government's bank, which manages the state treasury and fulfills the government's tasks; and it is the issuing bank and monopolizes the country's currency issuance. These three functions mean that the central bank is very detached, facing several types of subjects, including domestic governments, businesses and residents, as well as foreign countries. For all these subjects, it has to be a bowl of water. In the light of these requirements, the further separation of business and business clearly means that our central bank system is becoming more and more perfect.
Second, it has established the principle of separate operation and management of the banking, trust, and securities industries.
The third is to separate policy business from commercial business: policy business, which has long been included in the business of state-owned specialized banks, was separated and handed over to the three newly established policy banks.
Fourth, the state-owned specialized banks have clearly defined the requirements for carrying out reforms in accordance with the norms of commercial banks.
Fifth, on the basis of rectifying urban credit cooperatives, Beijing, Shenzhen, and Shanghai set up urban cooperative banks, which later became urban commercial banks. Subsequently, the whole country followed suit, and thousands of small and medium-sized banks appeared in China.
Along the way, in just over 20 years, China's financial system has developed from scratch to its current scale, which is not easy, and it is normal to have some problems.
In the new century, the most important thing in China's economic and financial development is its accession to the WTO. This indicates that China's opening up to the outside world has changed from a policy-based opening up to the outside world to an institutional one, and that China's domestic economic and financial system has begun to integrate with the global economic and financial system. At present, we are emphasizing large-scale opening up, and the main content of this is to integrate into the world in terms of institutions.
The essence of the so-called policy-based opening up is that the decision is entirely up to us, and we can open it whenever we want, close it whenever we want, and open whatever we want. As you know, if expectations are unstable, foreign capital will not come in, and if it does, there will be no long-term plans. Therefore, it is very important to join the WTO. Judging from the data on economic development, in the 10 years after China's accession to the WTO, China's growth rate has been the fastest in the 10 years since its accession to the WTO, with an average annual growth rate of 14 to 15 percent.
During this period, China convened the 16th National Congress and the Third Plenary Session of the 16th Central Committee, which determined that China would implement a socialist market economy system, and, importantly, confirmed that we were only in the initial stage of the socialist market economic system. This assertion is extremely important because the primary stage allows for the existence of multiple forms of ownership, allowing capital, like other factors of production, to participate in the distribution of social products. Today, as we continue to move forward, we must never forget that we are still in the initial stage of socialism.
Around 2002, we set up a series of regulatory departments and quickly benchmarked against international standards. For example, banking supervision is subject to the Basel Accord, securities regulation emphasizes the protection of investors' interests, stresses transparency, and emphasizes improving the governance mechanism of listed companies, while insurance regulation focuses on solvency, corporate governance structure, and market conduct supervision. It should be said that in these respects, we have kept up with the advanced international trend.
This Central Financial Work Conference has given more emphasis to supervision. Our current problem is not that there is no system or law, but that there is not enough enforcement and implementation, that there are laws that are not followed, and that law enforcement is not strictly enforced.
At present, there is a lot of discussion about the digital development of finance, which gives the impression that we are just getting started. In fact, the development of digitalization in China has a relatively long history and has gone through three stages.
The first stage is called the digitization of finance. This can be called the beginning of digitalization, we have initially achieved a historic breakthrough of "from manual to electronic, from stand-alone to networking", and gradually got rid of the backward situation of manual operation. In the 21st century, we will focus on the fields of data centralization, channel networking, and management informatization, and vigorously promote the informatization development of the financial industry. This is the second stage. In recent years, with the emergence of a new generation of information and network technologies such as the Internet, big data, cloud computing, blockchain, and artificial intelligence, finance and technology have shown a trend of further deep integration, and new digital technologies have fundamentally transformed the way the traditional financial industry exists and operates. This is the third stage.
Green finance and financial inclusion are not late in China. For example, in 2016, we launched the "Guiding Opinions on Building a Green Financial System", and during the G20 Hangzhou Summit, we withdrew the guidance on who should be financially inclusive, and so on.
Another area is asset management. In the past, there was no asset management in the mainland, but in 2013, under the policy environment of "deregulation, relaxation of restrictions, and risk prevention and control", all kinds of asset management institutions began to flock to the same red sea, and all walks of life began to do asset management, and the industry has developed rapidly in a blowout.
However, it is still the same problem, there are a large number of illegal operations, so in 2016, the industry was rectified, until 2018, when the "new regulations on asset management" came out, and the development of China's asset management industry entered a new stage.
Looking back at history, it is not difficult to see that many things in China have developed and there are regulations for supervision, but the vast majority of them are not implemented enough and are not in place. However, in any case, from having no banks and no markets to now having the most complete financial system in the world and leading the world in all aspects, China's achievements cannot be overemphasized. So, don't make a fuss if something goes wrong, after all, we don't have experience. Of course, it is also necessary to constantly rectify this system.
We have embarked on a new journey of financial reform, with the goal of building a financial power, and this is the second part that I will share with you today.
2. A new journey of financial reform: building a financial power
The focus of this financial work meeting is different from the previous emphasis, that is, we have particularly emphasized Chinese characteristics. This is inevitable, we are a country with a continuous history of 5,000 years, we are a country led by the Communist Party, and we are a big country, which is destined to have Chinese characteristics in our economic and financial system.
When it comes to financial power, it naturally also has the commonality of the world and Chinese characteristics.
The leadership of the Communist Party of China (CPC) is very distinctive with Chinese characteristics. First of all, the Chinese characteristics of a financial power are to strengthen the party's leadership and make it clear that finance is the power of the central government. Secondly, the people's nature of finance is also our characteristic, traditional finance is for the rich, we want to make it serve the people, for the general public. This manifests itself in four ways.
First, it is necessary to serve economic entities, reducing financial repression and preventing excessive financialization; second, it is necessary to promote the healthy development of the real estate market, especially to give play to the role of the government in housing security, so as to achieve the goal of having a place for the broad masses of the people to live; third, it is necessary to implement the land property rights of peasants and narrow the gap between urban and rural areas, because 40 percent of China's income inequality accounts for It can be attributed to the gap between urban and rural areas, and narrowing the gap between urban and rural areas can greatly improve the fairness of income distribution on the mainland; fourth, it is necessary to develop inclusive finance and improve the financial availability of low-income groups and small and micro enterprises, so as to increase their income and wealth.
We have noted that the current financial reform plan attaches special importance to science and technology finance and capital markets. For example, the statement that it is necessary to provide full-chain and full-life cycle financial services for technology-based enterprises, and to focus on solving the problems of "uneven bitterness" and "too much money" and "insufficient patient capital" for science and technology enterprises have appeared for the first time in the central documents.
Having analyzed China's peculiarities, we can make some analysis of the commonality of financial powers in the world. We believe that from a technical point of view, financial power is manifested in the following eight aspects: the size and structure of financial institutions, the size and structure of the financial market, the total amount and structure of wealth, the development of fintech, the international investment position, the international status of the currency, the financial infrastructure, and the influence on the international financial system.
We might as well look at the direction of China's further efforts through the comparison of the financial strength of China and the United States in these eight dimensions.
First, the size and structure of financial institutions. In terms of total assets, China's financial system is about 70% the size of the United States. It is important to know that China's financial system has grown from scratch to this scale, which is an achievement that has attracted worldwide attention. However, there are some shortcomings in the structure of the mainland's financial system, for example, the development of non-bank financial institutions such as insurance and pension funds is relatively lagging behind, which has hindered us in solving problems such as population aging. The Central Financial Work Committee put forward the need to do a good job in the "five major articles" of finance, which is aimed at making up for these deficiencies.
Second, the size and structure of financial markets. China has the world's second-largest stock market by market capitalization, but it's not well structured. The top 10 companies in the U.S. stock market are Apple, Microsoft, Amazon, Nvidia, etc., all of which are high-tech companies, while China is a traditional financial institution such as the Workers' and Peasants' China Construction Corporation, a traditional resource-based enterprise such as PetroChina, and even companies that have nothing to do with science and technology, such as Moutai. Such a structure is not conducive to leading the mainland's economic structure to a higher level. As far as the bond market is concerned, China's bond market is already the second largest in the world in terms of market capitalization, but unlike any other country in the world, China's main bonds are local bonds and have great credit risks.
Third, the total amount and structure of wealth. The wealth of the Chinese government exceeds that of the US government. China's ability to sit firmly in the Diaoyutai despite the wind and waves is because we have such confidence and resilience. Due to the different systems, the wealth of the U.S. government is about minus 1 point of the wealth of the United States, and the same is true of the United Kingdom, and in China, it is plus 15 points. That's where the gap lies. In addition, in continental market economies such as Germany and Japan, the ratio of government wealth to GDP is about 2 points.
Fourth, the development of financial technology. China is probably the third largest country in the world. The United States, which ranks first, has almost all the birthplaces of basic technologies and algorithms in the United States. In second place is the United Kingdom, because it is a world leader in terms of various systems, especially in the protection of intellectual property rights and personal privacy. China is in third place, mainly because we have a large enough population and a large enough market. Obviously, if China wants to compete with the United States in the development of financial technology, it must vigorously develop basic scientific research and constantly improve the basic system of the market economy on the basis of maintaining the advantage of a large population.
Fifth, international investment positions. China is a country with a relatively large international position, and our external assets are positive, while the United States is negative, that is, the United States is the largest debtor country in the world, and we are a large creditor country. However, the total return on the U.S. outward investment position is positive, and although China is a net creditor, the return on our outward investment position is negative. This means that our debt costs are high and our returns on assets are low, while the opposite is true for the United States.
Sixth, the international status of the currency. The international status of the US dollar continues to decline, but not much, and the international status of our renminbi is constantly rising, and it is rising rapidly, but due to the poor foundation and low starting point, our renminbi cannot be regarded as an important international currency at present. The Central Financial Work Conference also clearly pointed out that it is necessary to steadily and steadily promote the internationalization of the RMB, which is aimed at this situation.
Seventh, financial infrastructure. It should be said that in terms of financial infrastructure in a broad sense, China lags behind the United States in general. In particular, the payment system, corporate governance, accounting standards, credit evaluation, etc., are lagging behind. At the moment, we are still using someone else's system.
Eighth, we obviously need to improve our influence on the international financial system.
On the whole, we have made great progress in building a financial power with Chinese characteristics, but the gap is also relatively obvious. However, we certainly have great hope: our characteristics are incomparable with other countries, and in the comparable parts we are gradually narrowing. Therefore, I think that as long as we continue to work hard, we will be able to achieve this goal gradually.
In the next five years, we will achieve eight changes: a more complete modern central bank system, a more complete layout of financial institutions, a steady increase in the proportion of direct financing, clear rights and responsibilities of financial supervision, a significant strengthening of the financial rule of law, a more complete financial infrastructure, a steady and prudent advance in the internationalization of the RMB, and a remarkable achievement in high-quality financial development.
By 2035, we will make significant progress in the financial regulation and control system, the financial market system, the financial institution system, the financial supervision system, the development of financial products, the construction of financial infrastructure and financial governance system. I believe that there is great hope for achieving this ambitious goal.
Thank you.
(This article was first published on Titanium Media App)