Billing a hole [By Yang Yongliang/China.org.cn]

Alibaba's online money-market fund Yu'E Bao is a new service, but I would like to discuss it based on historical experience. In the 1970s, a series of financial innovations took place in the United States, which were defined as a creative way to meet the needs of the market by bypassing outdated government regulation. Innovation can be positive or negative; only time will tell.

The root of the contention in China's current financial industry is whether financial enterprises should be state-owned or not. However, in a mixed economic system, this becomes unimportant since the real competition is in the business models rather than property rights. The essential difference between financial and brick-and-mortar companies is that the former type plays with other people's money. Therefore, when judging the value of financial companies, we should focus not only on book profit but on social contribution.

In the past 30 years, "clearly-established ownership" has undoubtedly been the hottest word in China. It seems that as long as ownership becomes clear, coupled with some corporate governance methods, the Chinese economy can be stable and grow well. However, in a mixed economy, different types of property rights have different advantages and disadvantages; and the real competition is in the business model.

At present, the question we have to face is whether the current banking system and financial model is conducive to the country's economic growth. In my point of view, the answer is no. When the Chinese financial industry was dominated by policy banks, the banks supported a large number of state-owned enterprises as well as township and village enterprises. But during the restructuring and innovative period of the Chinese economy, most of the policy banks suffered great losses because of bad debts.

Some Western economists believed that state-owned banks are not as good as private ones, but that is not true. How to deal with the costs of economic restructuring and innovation is merely a fiscal or tax issue; economic efficiency needs to be measured by social benefits, not just by costs.

In order to integrate into the world market, Chinese policy banks shifted themselves into commercial gear. After major state-owned banks went public, their profits seemed to rise rapidly while bad debts shrank. However, it is still not easy to say whether the more commercial state-owned banks contribute more to the national economy or not.

Chinese state-owned enterprises have to allow for "value preservation and appreciation of state-owned assets," which to some extent turns state-owned banks into pawnshops which only serve large companies and rich people. On the other side, small and medium-sized enterprises (SMEs) cannot gain enough investments and loans, although they probably have more motivation and capability to create employment and economic growth. They have to turn to the informal financial market for financing at a much higher interest rate. Thus, it is not surprising to see both a high savings rate and a high lending rate for SMEs at the same time during the process of economic development in China. The real risk for the country's financial industry comes from the informal financial market rather than risks from state-owned banks.