The Fifth Plenary Session of the Nineteenth Central Committee of the Communist Party of China proposed that the core of China's future economic development is the transformation of economic growth mode and the establishment of a self-reliant and self-reliant scientific and technological power. The former is a shift in the way resources are allocated, while the latter requires new ways of allocating resources to drive its growth. Finance is the most important platform for bearing, promoting and optimizing the allocation of resources, and to build a new development pattern, it is necessary to promote the transformation of financial models, deepen financial reform, and rebuild China's modern financial service system.
Yi Xianrong, dean of the Wealth Management Research Institute of Qingdao University, believes that the Proposal of the CPC Central Committee on Formulating the 14th Five-Year Plan for National Economic and Social Development and the Long-term Goals for the 2035 Years (hereinafter referred to as the "Proposal") proposes many measures to deepen financial reform, such as redefining the basic functions of the central bank, improving the price system of the financial market, enhancing the ability of financial technology, and fully implementing the bottom line of the stock issuance registration system. These policies are conducive to enhancing the ability of China's financial system to serve the real economy, comprehensively improving the competitiveness of China's financial system, and will bring great changes to China's financial market.
How to understand the new connotation of China's financial reform in the future established in the Proposal?
1. The primary task of future financial reform established in the "Proposal" is to "build a modern central banking system and improve the mechanism for regulating and controlling the money supply". The role of the People's Bank of China as a "super central bank" is looming, and it will become the central functional department of regulation, management, change and innovation.
2. In the "Proposal", "improving the formation and transmission mechanism of market-oriented interest rates" is regarded as an important task of China's financial reform in the future. On the one hand, it is necessary to break the current pattern of institutional dependence, concept dependence and interests, and create a new benchmark interest rate system that adapts to China's financial market; on the other hand, it is necessary to anchor the RMB exchange rate at a level of "stable appreciation".
3. The "Proposal" pointed out that "improving the level of financial technology and enhancing financial inclusion" is also an important part of China's financial reform in the future. Starting from the infrastructure construction of financial data sharing, the formulation of relevant basic legal systems, the cultivation of digital citizens, and the introduction and mastery of advanced technologies, we will improve the level of financial technology in China.
4. The "Proposal" proposes to "fully implement the stock issuance and registration system, establish a normalized delisting mechanism, and increase the proportion of direct financing". The stock issuance registration system is fully implemented, and a series of institutional reforms are guaranteed, especially the major reform of the basic system of China's stock market to ensure its sustained and healthy development.
5. The "Proposal" requires "improving the system of financial risk prevention, early warning, disposal and accountability, and zero tolerance for violations of laws and regulations". Maintaining the bottom line of no systemic financial risk requires controlling the degree of domestic credit creation within the boundaries of possibility; correctly handling the huge bubble of China's real estate market; and handling the issues of financial innovation and financial supervision.
More exciting perspectives
In the face of unprecedented changes in a century, in the face of turbulence and uncertainty in the outside world, China takes the 14th Five-Year Plan and the 2035 long-term goal as the guideline to establish the direction of future economic development, the "internal cycle" dominated by domestic demand and the new model of rebuilding economic development by independent innovation in science and technology, so as to ensure the sustained and stable growth of China's economy in the future.
From a financial point of view, the transformation of the economic growth model is actually a change in the pattern of resource allocation. That is to say, the most important content of the new model of economic growth is to reconfigure resources, and finance is the most important platform for bearing, promoting and optimizing the transformation of the economic growth model. Because, to reallocate resources, it is necessary to make resources flow conveniently, and finance is the most important tool for carrying resources to facilitate the flow. Therefore, in order to build a new pattern of economic development and promote national scientific and technological innovation, it is necessary to promote the transformation of the financial model, to rebuild China's financial service system, to deepen financial reform, and to comprehensively enhance the ability of China's financial system to serve the real economy.
01 How to establish a modern central banking system and its functions
From the perspective of the nature of finance and the history of development, finance is a cross-time resource allocation method, through credit creation to convert immaterial things into exchange value or increase wealth tools, in order to promote social economic growth and increase people's well-being, so finance is the risk pricing of credit, it has a magical effect on promoting social economic growth and development. Similarly, since credit creation is a tool for transforming immaterial interpersonal relationships into material products, if credit creation goes beyond the boundaries of its possibilities, then financial products may deviate from the value of substantive products, leading to serious distortions in the pricing of financial risks and even financial crises. In this case, the overextension of credit creation is the root cause of the financial and economic crisis. Therefore, the establishment of modern central banks and the arrangement of monetary policy systems are all centered around how to solve this problem.
With the emergence of a new model of economic growth, as the central bank's Chinese bank, its function transformation is also imperative. Therefore, taking the construction of a modern central banking system as the primary task of China's financial reform in the future also means that the role of the Central Bank of China as a "super central bank" is about to emerge, and its functions will also undergo major changes.
1. If we take the reality of China's financial market as the background and adapt to the new model of economic growth, the modern central banking system.
The most important responsibility of the "super central bank" is to "build an institutional mechanism for financial effective support for the real economy" and improve the ability of the financial system to serve the real economy, rather than letting finance just become a tool for "money to make money".
2. Establish a financial market order that adapts to the new model of economic growth. This includes constantly formulating, revising, improving, and maintaining the laws and regulations of the financial market, and more importantly, establishing a market-oriented and impersonal credit system. This is the basis of the basic system of financial markets. Because finance is the risk pricing of credit, if the market-oriented impersonal credit relationship cannot be established, then the price mechanism of the financial market cannot operate effectively, and the allocation of resources carried by finance may be inefficient.
3. The "super central bank" must also comprehensively and correctly handle the relationship between domestic and foreign financial markets and the relationship between the government and the market.
China's central bank is both a legislator of the rules of the financial market system and a super coordinator and super regulator of the financial market. "At present, the rapid development of financial technology and financial innovation must properly handle the relationship between financial development, financial stability and financial security. It is necessary to implement the spirit of the Fifth Plenary Session, adhere to the principles of marketization, rule of law, and internationalization, respect international consensus and rules, and correctly handle the relationship between the government and the market. It is necessary to encourage innovation and promote entrepreneurship, but also to strengthen supervision, fully integrate financial activities into supervision according to law, and effectively prevent risks. ”
4. Forward-looking outlook and research on financial markets is an important task of the "super central bank". The transformation of the economic growth model, the rapid development of network technology, especially in the face of major changes that have not occurred in a century and the epidemic that has not been encountered in a hundred years, China's financial market will face a series of major challenges and opportunities, and the forward-looking outlook and research of the "super central bank" have become the most important aspects of the sustained and stable development of finance. Therefore, the "Proposal" not only requires the steady promotion of digital currency research and development, but also requires the improvement of the level of financial technology, and raises the forward-looking research of the financial market to an important height.
02 How to improve the price mechanism of China's financial market
In the market economy, the allocation of financial resources precedes the allocation of physical resources, and this process needs to be guided by price signals. Prices in financial markets are mainly interest rates and exchange rates.
1. Interest rate
Interest rates, as the price of funds in the financial market, different structures and different levels not only determine the flow of funds and who gives priority to them, but also determine the efficiency of financial resource allocation.
Interest rate marketization is that the government gradually relaxes and cancels the direct control of interest rates, so that the market plays a decisive role in the formation and change of interest rates, so that both the supply and demand of funds can independently price the credit risk of interest rates.
At present, China's interest rate market-oriented reform still has a long way to go. This not only requires the improvement of the market-oriented interest rate formation mechanism and transmission mechanism, but more importantly, the transformation from the indirect self-disciplined benchmark interest rate to the market-oriented benchmark interest rate, and the establishment of a market-oriented benchmark interest rate system that adapts to the new model of economic growth in a scientific, systematic and comprehensive manner, so as to straighten out the price relationship in the domestic financial market and form a market-oriented interest rate that is truly determined by the supply and demand of market funds.
Therefore, the most important thing in the reform of interest rate marketization in China's financial market is to break the current pattern of institutional dependence, concept dependence and interests, create a new benchmark interest rate system that adapts to China's financial market, and thus achieve a smooth transition.
Only in this way can China's market-oriented interest rate mechanism be gradually formed, funds can be effectively transmitted, and the transformation of the economic growth model can be promoted.
2. Exchange rate
The exchange rate is another price in the financial market, which determines the comparative advantage of resources and market allocation at home and abroad, and is related to the formation and development of a new model of economic growth.
Over the years, the reform of the RMB exchange rate formation mechanism has made great progress. Especially after the "811" exchange rate reform in 2015, the domestic consensus was basically formed, believing that the RMB exchange rate against the US dollar basically maintained two-way fluctuations and stability at a reasonable equilibrium level, the RMB exchange rate level reflected the market supply and demand relationship of capital internal and external flows, and the degree of marketization of the RMB exchange rate has been comprehensively improved.
Under the international monetary system dominated by the credit currency US dollar, the comparison relationship between one country's currency and another country's currency is related to both physical factors and non-physical factors; there are both comparative interests and the need to ensure the maximization of national interests. Therefore, in modern economic life, it is understandable for the government to guide the exchange rate of a country's currency through policies. The question is at what level the RMB exchange rate should be anchored at, which is more appropriate and more capable of maximizing the long-term interests of the country. In this sense, after the "811" exchange rate reform in 2015, the two-way fluctuation of the RMB exchange rate not only did not increase the degree of marketization of the RMB exchange rate formation mechanism, promote the sustained growth of the domestic economy, but also did not increase the degree of RMB internationalization, in fact, the degree of RMB internationalization in recent years has shrunk (that is, the proportion of the international market as an international reserve currency and international trade settlement currency has decreased year by year).
Therefore, as far as the major development strategy of the national economy is concerned, the RMB exchange rate should be anchored at a level of "sustained strengthening in stability".
This is an important basis point for establishing the future level of the RMB exchange rate.
03 How to improve the level of financial technology in China
Fintech is not to use the "financial digitalization" of new technologies to display financial business in a digital way, providing customers with convenient, fast and low-cost financial services; it is not only to move financial paper and offline business to mobile phones or online, so as to reduce financial transaction costs and improve financial transaction efficiency. Fintech is more important to take data as a factor of production or valuable assets, integrate financial data resources through new technologies, and realize financial data sharing, so as to provide consumers with a customized financial service that creates value, realize the automation, mobility, intelligence, popularization, inclusiveness and democratization of financial services, and thus form a new form of financial services.
Fintech is the most important tool for enhancing financial inclusion. The so-called financial data sharing is to analyze and process the data as a production factor or valuable asset, and re-integrate and configure these data to form effective decision-making information, so as to discover new financial needs, create more convenient, lower transaction costs, more inclusive and customer-customized financial products and services, that is, to provide anytime, anywhere, instant, low-cost, inclusive financial services.
To achieve financial data sharing, it is necessary to change the basic relationship between the ownership and use of financial data. It is this major shift in the basic relationship between ownership and use of financial data that could become a driving force for potential financial demand and financial innovation in the market. It can be said that with the rapid development of modern science and technology, the digital economy and financial technology, as a new way of resource allocation, will not only bring great impact and impact to traditional finance, but also add impetus to the new model of economic growth and provide unlimited opportunities for development.
Therefore, in order to improve the level of financial technology in China, we must start from the infrastructure construction of financial data sharing, the formulation of relevant basic legal systems, the cultivation of digital citizens, and the introduction and mastery of advanced technologies.
One of the most important features of fintech is the transformation from the previous personified and impersonal credit relationships to the pre-positioned or de-credited credit relationships pre-positioned by new technologies.
This financial transaction model seems to be technical, intelligent and objective, pricing credit risk is more scientific, objective, simple, convenient and flexible to external information, but in fact, the complex structure of credit relations is hidden in the black box of the algorithm language program, so that investors and regulators can not accurately identify and assess the nature and risk of such credit relationships. This requires the regulation of financial technology, both changing and unchanging. The so-called "unchanged" means that fintech supervision should return to the essential characteristics of finance. The so-called "change", that is, the supervision of financial technology, should put technological governance on the agenda. The so-called technology governance is both regulatory technology (Regtech), that is, relying on big data tools to obtain information and carry out real-time and dynamic supervision, and there is also the digitization of law, that is, allowing laws and regulations to be embedded in the algorithmic language of computers, so that the implementation of laws and regulations is automatically implemented through code.
04 How to improve and develop China's capital market
Under the new model of economic growth, how to develop and improve China's capital market, the requirements put forward in the "Proposal" are: "Fully implement the stock issuance and registration system, establish a normalized delisting mechanism, and increase the proportion of direct financing".
In 2019, the trial implementation of the new share issuance and registration system of the Science and Technology Innovation Board has comprehensively affected various behaviors of the entire Chinese stock market, and thus formed a new ecology for the sustainable development and prosperity of china's stock market, and the impersonal credit relationship necessary for China's securities market can also be generated in this process. But in fact, in order for the registration system for stock issuance to truly take root in the Chinese stock market, there are still many major institutional issues that need to be solved.
1. The basic system of China's stock market should be adjusted and improved. This is because the comprehensive implementation of the stock issuance registration system lies not only in the specific links of acceptance, review, registration, issuance, and trading, but also in paying more attention to the truthfulness, comprehensiveness, and timeliness of information disclosure, but also in whether there is a fair and just stock market trading environment, whether there is an effective market price formation mechanism, and whether there is a compensation system for investors to compensate when their interests are damaged. This involves the issue of whether the current legal system of Chinese mainland is suitable for the full implementation of the stock issuance registration system.
2. The current governance structure of Chinese companies. Promoting the improvement of the corporate governance structure of Chinese enterprises through institutional arrangements is a prerequisite for the full implementation of the stock issuance registration system. On the one hand, a more stringent set of standards is needed to improve the corporate governance structure of private enterprises and make them truly public companies after they are listed. On the other hand, it is necessary to form a check on the absolute power of the presiding officers of state-owned enterprises and companies.
3. Institutional rules are always incomplete. In the face of incomplete institutional rules, it is necessary to consider whether there is a corresponding legal system that is continuously improved, so as to achieve a balance between principled supervision and adaptive supervision. There is both the question of how the laws and regulations corresponding to the registration system are formulated, and how to establish a set of procedures that are truly decided by the public, rather than only the departments issuing laws and regulations. If the rules of the system come entirely from government departments, it is easy to lead to sporty supervision.
4. At present, China's securities market is still operating in the institutional environment of the approval system. China's securities market will change from an approval system to a registration system, which will face a series of institutional, legal, conceptual, and interests obstacles. These obstacles can easily lead to market behavior under the registration system "new bottle old wine".
05 How to keep the bottom line of not having systemic risks
The "Proposal" points out that it is necessary to improve the risk responsibility mechanism and zero tolerance for violations of laws and regulations. This is a new requirement for financial reform that "prevents and resolves financial risks and firmly adheres to the bottom line of not having systemic financial risks". This is also the focus of future financial reform, and the regulatory authorities will introduce corresponding legal systems. However, for China to maintain the bottom line of no systemic financial risk, perhaps the most important aspects are:
1. How to control the degree of domestic credit creation within the boundaries of possibility. This is related to the question of how to establish a measurement system for Credit Creation in China. The credit expansion method of China's financial market is very different from that of mature markets, and the existing set of indicator systems in Europe and the United States may not be suitable for China. If the credit creation measurement system is divorced from the real market, it is easy to lead to misjudgment of financial risks.
2. At present and for some time to come, the huge bubble in China's real estate market is the biggest financial risk. The balance of residential mortgage loans for Chinese residents is growing faster and faster. These are all based on the continuous rise in house prices. If house prices do not continue to rise, or even fall, their financial risks will be exposed. Therefore, how to deal with the huge bubble of China's real estate market is the most important part of whether it can maintain the bottom line of not having systemic financial risks.
3. How to deal with the problems of financial innovation and financial supervision. In the transformation of the financial model, it is necessary to comprehensively improve the ability to identify financial risks, and the concepts, methods, and tools of financial supervision must be transformed accordingly. Preventing and controlling financial risks is the precondition and inherent requirement for the transformation of the financial model, and it is also an inherent requirement for the improvement of China's financial service capabilities.
Article Source: Academic Frontiers November 2020 (Part 2)
Original title: "Building a Modern Financial Service System Adapting to a New Model of Economic Growth" (WeChat has abridged)
Author: Yi Xianrong, Dean of the Wealth Management Research Institute of Qingdao University
Editor-in-Charge: Chen Luying (Trainee)
New Media Editor-in-Charge: Fan Zhang
Vision: Liu Jie
(Image from the Internet)