The Caijing Magazine Annual Conference: 2006: Forecasts and Strategies was held on December 12 in Beijing, attracting the active participation of leaders in government, international organizations, business and academia.
Deputy Director of the Central Financial Work Leading Group Liu He, Chairman of China Insurance Regulatory Commission (CIRC) Wu Dingfu, Chairman of China Securities Regulatory Commission (CSRC) Shang Fulin, Chairman of China Banking Regulatory Commission (CBRC) Liu Mingkang and Governor of People's Bank of China (PBC) Zhou Xiaochuan made contributions as follows:
Liu He: Six Emphases in Next Year's Economic Policies
Although China maintained sound economic development this year, two new problems of overproduction and unbalanced imports and exports still emerged and addressing them will be underscored in next year's macroeconomic policies.
After a growth rate of 25.8 percent in 2004, fixed asset investment is still expected to grow over 20 percent this year.
Rapid increase in investment has caused overproduction in industries like steel, cement, iron alloy, and the problem is also looming in industries such as automobiles and textiles, resulting in enlarged stockpiles and price drops.
The imbalance in foreign trade should also be underscored in the coming year.
Due to slower import growth, domestic overproduction and transfer of processing trade to China, trade surplus this year is expected to reach US$100 billion.
China should increase imports of hi-tech products in 2006 and include factors such as environmental protection, safety and social security into enterprises' export costs.
The major goal of next year's macroeconomic policies will be to maintain a fast and stable economy and fend off periodic economic fluctuations. Six points should be emphasized:
l Boost domestic demand and enable it to play a bigger role in driving the economy forward.
l While adjusting the investment structure, put more emphasis on expanding consumer demand. Further improve the domestic consumer environment and create positive consumer expectations. Adjust domestic income distribution, steadily raising the proportion of middle-income group and augmenting the income of the low-income group.
l While stabilizing export and adjusting export structure, expand import by various means and international negotiations.
l While effectively utilizing foreign investment, continue the "go out" strategy. On a mutual benefit basis, encourage domestic enterprises to invest overseas and convert domestic savings into investment.
l When China is facing the problem of overproduction, intensify the adjustment of domestic supply pattern. Perfect the market competition order and enhance the concentration level of industry structure and organizations with price reform, anti-monopoly and government function transformation as the emphases.
l Promptly improve social security systems. Rigorously enforce environmental protection and safety standards and make enterprises' internal cost manifest the genuine social cost.
Wu Dingfu: Insurance Industry's Four Opening up Policies in 2006
China fully opened up its insurance industry to foreign capital at the end of 2004. Four features in the opening up of the industry this year are: internationalization of insurance companies, internationalization of insurance business, internationalization of insurance market and the internationalization of insurance supervision.
More foreign-funded insurance companies emerge in China. Large insurance companies in China such as China Life Insurance, the People's Insurance of China and Ping'an Insurance have been listed overseas, and many domestic insurance companies are attracting foreign strategic investors.
China will fully open up its financial industry by the end of 2006, putting China's insurance industry among more fierce international competitions, and the absolute advantage of international financial and insurance groups contrasts with China's insurance industry's comparatively low operation and management level.
China's insurance industry will continue its opening up policy next year:
l Resolutely continue the opening up course of the insurance industry. Promote development through reform and opening up. Unremittingly fulfill the commitment to opening up the industry and gear it to international standards.
l Give priority to key issues and optimize the structure. Introduce foreign insurance capital into such fields as endowment insurance, health insurance, agriculture insurance and responsibility insurance. Support domestic and foreign-funded insurance companies to set up branches for business operations in central and western part of China. Encourage and support domestic-funded insurance companies to invite renowned international financial and insurance groups as strategic investors and bring their role into full play in improving corperate governance.
l Enhance the internationalization level of supervision. Intensify and improve the modern insurance supervision system pillared by solvency supervision, market behavior supervision and corporate governance supervision. Bring forth new ideas into the supervision system in accordance with the comprehensive financial operations. Beef up cooperation with other supervision departments, promote exchange on international insurance supervision and intensify supervision coordination with the supervision departments at the headquarters of foreign-funded insurance companies. Enhance insurance exchanges and cooperation with neighboring countries and regions to strengthen supervision of cross-border insurance. Actively participate in the formulation of international insurance regulations and supervision principles. Set up long-term personnel exchange mechanism with international insurance organizations and supervision institutes.
l Guard against risks and safeguard national financial and insurance security. Based on the actual situation and bearing capacity of China's insurance industry, give timely assessment of the risks in the internationalization of the industry among international competitions and implement relevant systems and measures. Closely monitor the tendency in the international market and prevent foreign-funded insurance companies from transmitting risks in China's insurance companies. Strictly prohibit money-laundering activities.
Shang Fulin: Four Emphases in Securities Supervision
China is stably implementing its split share reform. By December 12, 339 listed companies have completed or started the reform. The market value of these companies accounts for 30 percent of the overall market value of companies listed in Shanghai Stock Exchange and Shenzhen Stock Exchange.
China will intensify supervision over the market from four aspects in the future.
l Actively develop the capital market. A profound and effective capital market is crucial on the way to realizing China's modernization and enhancing the comprehensive national strength. Whether risks in operation, innovation and bankrupt can be dissolved through enough direct financing can help avoid bad bank assets accumulation and has a direct bearing on national economic and financial security.
l Put emphasis on improving market functions. Giving play to the basic functions of the capital market can make the state macro control more flexible and effective, urge enterprises to enhance their management and competitive strength and offer investors opportunities to increase wealth. The basic functions of the capital market should be improved through basic policy construction. Intensify the mechanism of the survival of the fittest and guide listed companies to attach more importance to system reform than financing and to returns than investment.
l Continuously strengthen building of infrastructural systems to guarantee the market functions. While implementing share merge reform actively and steadily, we need to solve deep-rooted structural problems in the market to prop up stable market operation.
l Actively promote market innovation to boost capital market and raise its efficiency. In order to increase the ratio of direct financing, we need to actively encourage market innovation in three aspects: 1) establish multi-level capital market; 2) develop new financial products in the favor of institutional investors; 3) continuously improve transaction settlement system to provide a safe, highly efficient and suitable service.
Liu Mingkang: Financial Derivatives Encouraged
China Banking Regulatory Commission (CBRC) takes a positive attitude toward the development of credit derivatives.
Credit risk, a major risk in banking sector, now poses the biggest threat during China’s economic transition, and credit derivatives involve the following three risks:
● Whether the trading partner of credit derivatives can shoulder its obligations;
● Legal risk. The trading of credit derivatives has to comply with a standard promulgated by the International Swaps and Derivatives Association, but some newly developed derivatives are not regulated in the standard. As financial derivatives are developed quickly in many fields, the legal status of many trading partners is not guaranteed.
● Some deals and derivatives are rather to transfer disastrous risks or macro-economic risks than hedge credit risks, which make them much more complicated.
As for market risks or even losses triggered by large-scale financial derivatives, they can be attributed to the lack of effective market risk management. It is not necessary to give up derivatives to keep from possible risks, he warned, saying that "risks exist for their uncertainties."
Three suggestions to strengthen risk control are:
First, set up a scientific and effective risk management system, including a risk identification, quantification, monitoring and control system and a relevant internal control system;
Second, have risk-transferring and hedging tools to rate and disperse risks;
Third, strengthen market supervision and ensure full information disclosure and explanations for possible risks.
Commercial banks are asked to further improve their risk management system and enhance its transparency. The commission will encourage banks to conduct financial innovation and develop more risk-transferring and hedging tools, so that they can control and adjust risks initiatively.
Renminbi-denominated derivatives will be put forward soon, and interest rate liberalization, which is being implemented step by step, paves the way for it.
Zhou Xiaochuan: More Policy Support for RCC Reform
China will give more policy support to help rural credit cooperatives (RCCs) cast off their non-performing assets and strengthen their competitive ability.
RCC is the major source of funds in the country’s vast rural areas. There are about 30,000 RCCs, scattered across the country. Since 2003, a program was launched to restructure the mostly unprofitable RCCs. Key parts of the reform include clarifying ownership structure, improving corporate governance and shifting responsibility for the RCCs from the central to provincial authorities.
Eight provinces and municipalities have been chosen to conduct pilot program in this round of RCC reform, and then their experiences have been extended to 29 provinces and municipalities nationwide.
In Beijing, Shanghai and Guangdong, rural credit cooperatives have been transformed into rural commercial banks.
Rural credit cooperatives are now enhancing their capital base, reducing non-performing loans and improving the quality of loans, and the State Council has decided to grant certain stimulating measures to foster reforms.
For example, it will help them dispose non-performing assets accumulated in the past years through issuance of commercial bills or other policy tools.
(China.org.cn by Tang Fuchun and Yuan Fang, December 20, 2005)
