Policymakers hope new reforms will revitalize
the slowing Chinese economy. The country's highly monopolized
financial sector has become the first target of reform.
The major deficiency of China's current
financial system is that the capital market is still monopolized by
state-owned banks, but these banks are not able or willing to
support small and medium-sized enterprises (SMEs) and emerging
However, SMEs are one of the main forces in
resolving employment problems, and also an important power in
China's economic development. Emerging industries are the key
industries to be developed in China's current economic
To reform the financial sector, private
investment potential should be fully utilized.
Today there is up to 4 trillion yuan ($634.9
billion) worth of private capital in the market, with most of it in
the real estate sector, private lending, art and wine. If private
lending is legalized and the capital is properly transferred into
the real economy, speculative practices will be changed to
investment practices, which will make it much easier for China's
capital-hungry SMEs to get access to financial resources.
The financial reform will also deliver a
message: the Central Government will no longer depend on monetary
policies as much as it did in the past when dealing with problems
in the real economy. It will try to resolve problems through
financial reform, taxation reform and economic system reform.
It's not easy to push forward the reform. It
must be based on a stable financial sector as well as stable and
sound economic development. It's also necessary for decision-makers
and reform participants to properly judge various problems emerging
in the process of the financial reform and manage to solve the
problems in a timely and flexible way.
Currently, two things should be taken into
consideration. First, it's important to legalize private lending.
While promoting private investments, it's necessary to first work
out "game rules" for private investments. Second, China's financial
sector not only needs to open private finance, but also needs a
diversified financial market and interest rate liberalization.
Due to the consideration of economic security
and stability, the financial reform that stems from Wenzhou in east
China's Zhejiang Province, could be seen as a trial. Wenzhou is
expected to set up a diversified financial system so as to greatly
improve financial services and strengthen the ability to prevent
and tackle financial risks. The region is supposed to provide
experience to the rest of the country.
It's a pity that the liberalization of the
interest rate and the establishment of private or joint-stock banks
are not included in this round of reform. We hope that China's
financial reform will be further pushed forward to ensure a
successful transition of the Chinese economy.