Keep opening up, reforming and globalizing
Think-tank members and regulators extended debates over macro policy coordination and China’s financial opening-up at the two-day forum which ended in Shanghai yesterday.
Economists posted weak outlook on global growth, and called for broader communication channels between central banks to save each other from rising spillover effects on finance policies. Conservative views were also addressed that China needs steady but not proactive approaches to financial reforms.
Under the current ultra-loose monetary condition of the global economy, is it the right path to push forward easing policies or negative interest rate? What are the most uncertain obstacles among major economies? How will China’s Belt and Road initiative revamp the cooling economy and become the engine of emerging markets?
Shanghai Daily shares with you some opinions from the Lujiazui Forum to difficult questions that each economy, including China, is facing.
The financial market is brewing new financial risks amid weak growth and high liquidity in the global market. There is a strong expectation of a US rate hike and both the European Union and Japan gave signals for further monetary easing.
Such policies have been pushed for about seven to eight years in those countries, but we see less encouragement for the real economy. Instead, such government interference led to asset price bubbles.
Major economies draw further apart from each other’s monetary policies, and the gap between them would make a fragile global market even more fragile. In my view, the EU and Japan should consider halting expansion of monetary easing.
Under current economic circumstances, macro policy coordination should be set as one of the top priorities between economies to control the spillover effects of certain monetary or finance policy by one country.
Such coordination could reduce the volatility of the market and stabilize financial conditions. At least the communication mechanism won’t deteriorate or affect negatively financial operations.
The Belt and Road initiative provides opportunities for banks to go international. The globalization of Chinese banks can be achieved by many ways, including setting up overseas branches, overseas acquisitions and setting up business divisions in overseas markets.
Learning from overseas banks is an important part of going international. We should learn about how to improve service efficiency and managing risk of regulatory compliance.
In terms of domestic opening-up, China could push forward the comprehensive development of the banking sector by allowing banks to engage in securities businesses.
The key is to talk to investors, in particular long-term investors such as pension funds, insurance companies and strategic investors, about what would make them comfortable in long-term investment in assets and in this market.
Long-term investors and long-term investment will contribute to market stability.
It’s important to allow foreign institutions to engage with financial regulators here and bring them into the process of putting a framework here.
Shanghai made progress during the 12th Five-Year (2011-2015) Plan period, with gross domestic product of the financial sector accounting for 16.2 percent of the city’s total, almost equaling the 16.6 percent in Hong Kong. But there are still shortcomings in terms of market opening as the foreign participation rate in Shanghai’s financial market is only 3 percent, compared with 30 percent in Hong Kong.
Shanghai should continue to open up and boost the level of internationalization in order to attract more international organizations and foreign institutions to gather here. The financial market should be further opened both internally and externally. We are mulling on a negative list for foreign investment in the financial sector in Shanghai’s free trade zone, which is expected to be released within the year. We are also striving to ease restrictions on foreign ownership in joint ventures. For domestic investors, Shanghai will continue to push forward the opening-up of the financial service sector to private capital, support qualified private capital to set up banks, financial leasing companies, finance firms and consumer finance companies.
Meanwhile Shanghai will improve supervision, financial services environment and financial risk prevention to create a better condition for further opening-up.
The regulator should be very cautious in using capital controls amid a strong US dollar and challenging foreign exchange rate. If capital control was pushed out in haste to curb the pressure of currency depreciation, there would be double panic on both domestic and global investors and cause huge impact on the financial market.
The People’s Bank of China changed the way it sets the exchange rate last year. Speculation of a weaker yuan has calmed down for now, thanks to the regulator’s discreet utilization of capital controls and continuous promotion of capital account convertibility. When the signal of financial reform and currency internationalization is clear, market anticipation and sentiment could remain stable.
For the next step, China should issue more yuan-denominated products to defend its foreign exchange volatility. Only more trading of the yuan could push forward the currency’s internationalization.
I think Hong Kong plays an important role in the opening-up of the mainland market as demonstrated by the success of the Shanghai-Hong Kong Stock Connect and the Mutual Recognition of Funds program. Further opening-up can be done by using the Hong Kong markets more, allowing more investment products to launch here while allowing mainland investors to participate in overseas markets.
Hong Kong can also contribute to the Belt and Road initiative by raising funds and tapping talents from all over the world. Hong Kong has been joining hands with development institutions and banks to construct the Belt and Road, as well as encouraging local financial institutions to invest in the project.