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More Investment Channels for Residents

Jan 08-2020   



 

Financing for small and micro-enterprises has been widely discussed. The dearth of investment opportunities for residents deserves equal attention, said Prof. Huang Yiping, Deputy Dean of the NSD, at the recent CF40 Forum for which he chairs the academic committee.

 

A joint research by the NSD and the Brookings Institution, titled China 2049, has identified major challenges posed by aging. Some will be easier to handle than others. For example, the slumping consumption can be offset by rising urbanization, as urbanites tend to spend more.

 

The thorniest issue will be the shortfall in pensions, which has approached 2% of GDP. Chinese residents as a whole have 70% of their financial assets in banks, 20% in securities, and 10% in pensions and insurances. In comparison, the ratio of pensions and insurances out of financial assets is 27% for Indians, 32% for South Koreans, 31 for Americans, and 46% for Singaporeans.

 

Chinese residents need more investment channels and asset management, as real estate investment starts to lose its shine. In search of higher returns, some money has ended up in shadow banking and Internet finance, both of which have come under ever-stricter oversight for outsized risks. Paradoxically, shadow banking and Internet finance reflect the financing needs of the real economy and the incapability of traditional finance organizations and capital markets to fill financing gaps.

 

Oversight should strike a balance between innovation and stability. An all-rounded structural reform might be needed to solve the residents’ investment conundrum.

 

For a starter, market-based reforms should be carried out to allow for marketized risk pricing. Traditional ways of managing capital markets should cede to oversight. Secondly, innovation of financial products and institutions should be promoted. Traditional financial organizations, including insurance companies and banks, have enormous space for development. Lastly, reform the oversight system by learning from problems having arisen out of Internet finance while bolstering innovations and covering all financial transactions with oversight.

More Investment Channels for Residents

Jan 08-2020   



 

Financing for small and micro-enterprises has been widely discussed. The dearth of investment opportunities for residents deserves equal attention, said Prof. Huang Yiping, Deputy Dean of the NSD, at the recent CF40 Forum for which he chairs the academic committee.

 

A joint research by the NSD and the Brookings Institution, titled China 2049, has identified major challenges posed by aging. Some will be easier to handle than others. For example, the slumping consumption can be offset by rising urbanization, as urbanites tend to spend more.

 

The thorniest issue will be the shortfall in pensions, which has approached 2% of GDP. Chinese residents as a whole have 70% of their financial assets in banks, 20% in securities, and 10% in pensions and insurances. In comparison, the ratio of pensions and insurances out of financial assets is 27% for Indians, 32% for South Koreans, 31 for Americans, and 46% for Singaporeans.

 

Chinese residents need more investment channels and asset management, as real estate investment starts to lose its shine. In search of higher returns, some money has ended up in shadow banking and Internet finance, both of which have come under ever-stricter oversight for outsized risks. Paradoxically, shadow banking and Internet finance reflect the financing needs of the real economy and the incapability of traditional finance organizations and capital markets to fill financing gaps.

 

Oversight should strike a balance between innovation and stability. An all-rounded structural reform might be needed to solve the residents’ investment conundrum.

 

For a starter, market-based reforms should be carried out to allow for marketized risk pricing. Traditional ways of managing capital markets should cede to oversight. Secondly, innovation of financial products and institutions should be promoted. Traditional financial organizations, including insurance companies and banks, have enormous space for development. Lastly, reform the oversight system by learning from problems having arisen out of Internet finance while bolstering innovations and covering all financial transactions with oversight.