On February 22, the Political Bureau of the Communist Party of China's Central Committee held the 13th collective study on improving financial services and preventing financial risks. During the study, the Chinese President Xi Jinping pointed out that finance is an important core of competitiveness for China. Financial security is an important part of national security and the financial system is an important basic system in economic and social development. China will have to grasp the key points of improving financial services, preventing financial risks and promoting the high-quality development of the financial industry.
Concerning Xi Jinping's speech on deepening the structural reform of the financial supply side, he mainly emphasized three points:
First, the financial industry should be based on the service industry of the real economy. China should provide precise financial services around the industrial, market, regional and green development systems for building a modern economy and a comprehensive, multi-level financial support service system which includes venture capital, bank credit, bond market, and stock market. For this, China should choose private enterprises that are in line with the direction of the national industrial development, who main business is relatively concentrated in the real economy, advanced technology, and marketable products.
Second, China will need to prevent and resolve financial risks, especially systemic financial risks. It is necessary to steadily promote the localization of key information infrastructure in the financial industry. There is a need for China to conduct comprehensive survey of the financial industry and improve the information system that reflects risk fluctuations in a timely manner. It is also quite necessary for China to manage its talent and money. This means that China has to manage the main individuals responsible for financial institutions, financial supervision departments and senior and middle-level management personnel and strengthen anti-corruption efforts in the financial sector. In addition, China needs to adopt modern scientific and technological means and payment settlement mechanisms to dynamically monitor online/offline and international/domestic capital flow flows in a timely manner, so that all capital flows are placed within the supervisory vision of financial regulatory agencies.
Thirdly, China needs to accelerate the implementation and promotion of financial reform and opening-up. It is necessary for China to deepen the reforms of the access system and transaction supervision, as well as adhere to macro-prudential management and micro-behavior supervision. This also means that China should establish a regulatory accountability system, to tackle weak supervision, cover-ups, and decision-making mistakes. It is also crucial for China to resolve the problem of the low cost of illegal activities in the financial sector, especially in the capital market.
On the whole, the Politburo's study meeting reflects the basic principles of the party's management of finance. The focus is still on the core of "financial stability" before development. Regardless whether it is regulation or reform and development, there must be stability. Anbound's macro research team wishes to point out few key points from the market's perspective:
(1) All capital flows are placed within the supervisory vision of financial regulatory agencies; (2) There is a need to seriously tackle misappropriation and actions such as weak supervision, concealment, and decision-making mistakes; (3) Low cost of violation in the financial fields, especially capital markets should be resolved.
These three points are directed at the financial regulatory authorities and the financial market. If implemented, there will be great policy efforts, especially to increase the cost of illegal capital markets, which may have a shocking impact on local markets.
We noticed that the financial regulatory authorities will soon respond to this study. The State Council Information Office has requested the officials of the China Banking Regulatory Commission to take precautions on the relevant situation of financial risks. It can be expected that under the high emphasis of the central government, policies, measures and actions to strengthen financial supervision will be introduced in stages. This means that the Chinese financial market may be subject to certain regulations.
The issue of stability and development has always been a major problem in China's capital market. The coordination and balancing of the contradictions has also not been solved well over the years. A very obvious fact is that the development of China's capital market over the years has not been adequately matched with the long-term development of the Chinese economy. This situation can be described as "prosperous in the economy, failure in finance." Take China's stock market as an example. Over the years, China's stock market has been on the rise and fall. The Shanghai Stock Exchange Index is still struggling around 2,700 points. The market supervisory personnel has very high turnover., Being a supervisory personnel is regarded as a "high-risk occupation." What is the reason?
Anbound's research team has long tracked the development of China's capital market from a macro level. Anbound's chief researcher has previously successfully predicted that in the 1990s after its initial rise, the Chinese stock market would plunge. For China's capital market, Chan Kung has the opinion that China's capital market is always in the midst of two pressures. The first is the pressure of the market and investors, the other is the pressure of financial stability and control. Both of these pressures simultaneously affect the market and even make the regulatory authorities' jobs difficult. What will happen to China's capital market in the future? Chan Kung said that this is probably not a simple capital market issue. It is necessary to find answers from China's historical experience. In the history of China, the stable periods were often unsuitable business. This situation is the most obvious during the Ming Dynasty, where agriculture was emphasized while trade suppressed, and Admiral Zheng He's naval expeditions led to the sea-ban. The reason behind all these is to maintain stability.
From the perspective of Chinese history, there is a contradiction between "stability" and "development." How then, should China resolve such a contradiction? Should it be done through dynamic development, or to achieve balance in static? There is currently no specific policy operation, which may be a problem that needs to be addressed in future policies. Xi Jinping said that China should "insist on preventing risks in promoting high-quality development". This seems to be pointing towards solution to problems in development, instead of choosing to remain in stagnation.
Final analysis conclusion:
China's capital market is currently facing a contradiction between stability and development, which causes its capital market to be under dual pressures. To achieve the development of the capital market, China must breakthrough static stability and resolve problems in its development.
