China's latest National Financial Work Conference (NFWC), which convenes twice a decade, is expected to be held again in mid-2022. Being the highest standard meeting for the development and stability of China's financial system, it is expected that the NFWC will establish the development path of the country's financial sector in the next five years and set the tone for the next series of major financial reforms. Because of this, the trend of this conference has attracted much attention of the market.
Judging from the arrangements after the previous NFWC meetings, the purpose of the conference is mainly to tackle the practical problems faced by China's financial field and resolve outstanding contradictions. At the 5th NFWC in 2017, Chinese President Xi Jinping proposed that financial works should grasp the four principles of returning to the origin of finance, structural reform, reinforcement of oversights, and market-oriented policies. After the meeting, the Financial Stability and Development Committee of the State Council was established. In financial supervision, the committee rebuilds the regulatory framework of the so-called "One Bank and Two Supervision Committees", namely the People's Bank of China (PBoC), China Securities Regulatory Commission (CSRC), and China Banking and Insurance Regulatory Commission (CBIRC). Its monetary policy too has set the tone to macro-prudential management.
After that, maintaining financial stability and preventing the emergence of systemic risks have become the main tasks of the Chinese authorities, where they have dealt with some risk cases successively. This has promoted financial institutions and local finance to start "deleveraging". In terms of reform, on the one hand, the PBoC has stepped up the reform of the interest rate and the exchange rate mechanisms; on the other hand, there is the acceleration of the capital market reform. The Science and Technology Innovation Board and the Beijing Stock Exchange have been launched one after another. Then, the registration system reform has been implemented, while the bond market connectivity is further strengthened. Restrictions on foreign investment entering the Chinese market have also been relaxed, and efforts to open up the domestic market to the outside world have been increased as well.
From this point of view, financial risk prevention and promotion of reform became the key tasks after the previous NFWC, aiming to resolve various issues after the improvement of financial freedom. This, in turn, was with the aim to establish an orderly market order. As for the upcoming NFWC, researchers at ANBOUND noticed that after five years of development, the situation faced by the Chinese financial sector has seen drastic adjustments. Although some long-term problems have been alleviated, both the situations within China and in the world have undergone tremendous and profound changes, requiring further considerations in the response measures of policies and strategies.
First of all, in terms of changes in the situation, the issue of systemic financial risks is still the main matter of concern. Previously, some local and individual financial risks have occurred one after another, but as China's economy continues to slow down and the real estate market trend reverses, although old problems were solved or alleviated, new problems continue to emerge. Some of these problems, like the large-scale risks experienced by certain rural banks, are even more serious than before. Last year, China began to set up a financial stability fund and establish a financial holding group supervision mechanism, which will be further strengthened in the future. At the same time, under the premise that financial supervision falls within the authority of the central government, the responsibilities of local financial supervision need to be further clarified. At the same time, as the local government debt problem becomes more and more serious, restraining the government's financing impulse, opening up new financing and investment space, and strengthening the local authority to dispose of non-performing assets are some of the issues that need to be resolved to prevent systemic risks.
Secondly, the relevant authorities need to strengthen financial supervision and make up for regulatory oversights, especially when there are new challenges brought about by the rapid development of internet finance. Although P2P online lending has been rectified before, with the deep integration of internet technology and the financial field, handling the capital as well as preventing the transfer and the generalization of risks in mobile payment and inclusive finance will still require the optimization and innovation of financial regulatory mechanisms. On the one hand, the supervision of the capital market will continue. On the other hand, the PBoC and other financial regulators are still exploring means to strengthen the micro-method of systemic supervision. Under the trend of mixed financial operation, the mechanisms and tools of supervision will still need to be continuously expanded. In addition, with the "sinking" of finance, it would be increasingly necessary to enhance the supervision of small and medium financial institutions. The current financial development and technological progress have resulted in more categories being involved in financial development. Thus, the new NFWC needs to address these systemic, cutting-edge issues of financial regulation.
Finally, there is the question in regard to reform. It is expected that there will be the continuous implementation of policies concerning finance as real economy service, so as to improve and optimize the financial transmission mechanism and establish a comprehensive credit system. This involves multiple aspects, not merely the further reform of interest and exchange rate mechanism, but also the development and breakthrough of the capital market. Specifically, the restructuring and reform of small and medium-sized banks with more problems may be arranged in the soon-to-be-held NFWC. Previously, the risk mitigation of small and medium-sized banks mainly focused on corporate restructuring, raising the threshold, and strengthening corporate governance. Various localities have been promoting the restructuring of small and medium-sized banks through special debt capital injections. Nonetheless, the PBoC's goal of reducing high-risk financial institutions by half in the 14th Five-Year Plan still requires comprehensive policy thought and guidance. More importantly, it would be indispensable to determine the repositioning of the development of small and medium-sized banks, making them a crucial part to serve small and medium-sized enterprises.
On the whole, in the face of the impact of the COVID-19 outbreaks, the geopolitical risks, and changes in the international financial landscape, the NFWC is expected to stick to the current basic policy of "seeking progress while maintaining stability", and will focus on "preventing risks" and "promoting reforms". On the one hand, it is necessary for it to continue the ideas put forward in the previous conference, optimize financial supervision, and improve the ability to resolve systemic risks. On the other hand, it will also need to further locate a new path for China's financial development, continue to promote financial structural reform, explore means to expand the direct financing market, and enhance the competitiveness of financial institutions.
Final analysis conclusion:
China's latest National Financial Work Conference will still adhere to the current basic economic policy of "seeking progress while maintaining stability". The dual aspects of "risk prevention" and "reform promotion" too will constitute its major themes. All these are with the aim to resolve the main contradiction facing the financial field, as well as to open up space for the development of the financial industry.
