China’s top financial meeting’s stress on financial security and opening-up not contradictory: expert
Local government debt, real estate sector problem to be properly resolved: experts
Published: Nov 02, 2023 10:36 PM

A view of the Lujiazui area in Shanghai Photo: VCG

A view of the Lujiazui area in Shanghai Photo: VCG

Editor's note: The central financial work conference, held in Beijing from Monday to Tuesday, emphasized the need to comprehensively enhance financial supervision, improve the financial system, optimize financial services, prevent and resolve risks, push forward financial development with Chinese characteristics and promote high-quality financial development.The meeting came as the financial risks that arise from the spill-over effects of interest rate hikes in Western economies and the debt risks faced by many countries are weighing on global economy. China's local government debt and real estate slump have also caused concerns. In the face of the complex situation in the world, what signals has China sent at the meeting on how to effectively prevent and resolve financial risks? Two Chinese experts shared their views as below.

Guan Tao, global chief economist at BOC International under Bank of China

One of the highlights of this major conference is the first proposal to work fast to build China into a leading financial power. The 20th National Congress of the Communist Party of China (CPC) emphasized that high-quality development is the primary task and the top priority of the CPC in governing and rejuvenating the country. Finance is the lifeblood of the national economy and an important component of the country's core competitiveness. Economic development cannot be achieved without the support of finance. Serving the real economy is the duty and purpose of finance, as well as the fundamental measure to prevent financial risks.

The conference proposed to promote high-quality development of finance, and deepen structural reform of the financial supply side as the main theme. The conference made specific arrangements for the financial sector to provide high-quality services for economic and social development in the next stage. It called for requirements on monetary and financial policies, as well as efforts to build modern financial institutions and market systems, facilitate the flow of funds into the real economy, and optimize the financing structure to better play the role of capital market hubs. These are all about improving the financial system.

The conference also emphasized the need to promote high-level opening-up in the financial sector and ensure national financial and economic security. It stressed the importance of both "bringing in" and "going out," steadily expanding institutional opening-up in the financial sector, enhancing facilitation of cross-border investment and financing, and attracting more foreign financial institutions and long-term capital to operate and invest in China. This is a positive approach to dispel concerns about foreign investment. 

In terms of high-level financial opening-up, efforts can be made in promoting institutional opening-up in the financial sector. China can also make good use of free trade zones, free trade ports, and financial hubs to further promote the internationalization of the financial market.

As China's financial market becomes increasingly open, the exposure to risks in terms of foreign financial assets and liabilities is increasing, posing new challenges for risk prevention and mitigation, which requires better coordination of opening-up and security, effectively prevent and mitigate risks in foreign economic activities, especially the contagion of cross-border risks. Securing financial and economic security is not contradictory to attracting long-term foreign investment in China.

Yin Jianfeng, chief economist at the Commercial Bank of Zhejiang

Foreign media have long been hyping up China's local government debt and financial risks in the real estate sector, but their reports contain many inaccuracies and exaggerations. To objectively understand China's local debt issues, it is necessary to first understand the differences in size and structure of the debt compared to other countries.

China's government leverage ratio is around 100 percent, which is not high compared to the international standards. According to data from the Ministry of Finance, as of the end of April this year, the balance of local government debt in the country was nearing 37.05 trillion yuan ($5.16 trillion), which is within the approved limit set by the National People's Congress (42.17 trillion yuan). Overall, the risk remains manageable.

Since the start of reform and opening-up, China's fiscal system has been more growth-oriented. Fiscal funds were mainly used for investment to drive economic growth, with the main fiscal functions being exercised at the local government level. However, this growth-oriented fiscal system has become incompatible with economic transformation and upgrading, and the fiscal system needs corresponding adjustments. 

A people-oriented public fiscal system, with central finance as the main source, would better subsidize the needs of residents in areas such as childbirth, elderly care, and education, thereby promoting social consumption and driving economic growth.

The conference emphasized the need to establish a long-term mechanism for preventing and resolving local government debt risk, establish a government debt management mechanism that is compatible with high-quality development, and optimize the debt structure of the central and local governments. 

The conference also emphasized the promotion of a sound cycle between finance and real estate, the improvement of regulatory systems for real estate enterprises and fund management, and the enhancement of macro-prudential management of real estate finance, in order to properly handle and resolve debt and associated risks. 

It is worth noting that this year's financial conference is particularly focused on addressing the challenges and risks faced by the financial industry, in addition to discussing other issues that have recently received attention, such as the real estate sector problems and local government debt. It not only emphasizes the need to properly address these issues, but also puts forward detailed plans to address the challenges, which is exactly what the outside world expects.