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Three Ways to Elevate International Influence of China’s Financial Sector

Jul 30-2024   



 

In a recent commentary, Prof. Huang Yiping offered three major suggestions for China’s financial sector to step up its global influence. He is Dean of the NSD.

 

The Central Financial Work Conference held in late October, 2023, first set forth the goal of accelerating the building of the country into a financial powerhouse. Prof. Huang believed that a financial powerhouse should have at least three qualities, namely high efficiency, stability, and international influence. The Central Financial Work Conference laid out specific measures to improve all three aspects.

 

Objectively, enhancing the global influence of the financial sector faces certain constraints, said Prof. Huang. He highly commended the remarkable development of the financial industry since the inception of reform and opening up, but also drew attention to a key question: how can such a domestically viable and efficient system dock with the international one? Another constraint is the unlikelihood of opening up the capital account in the near term.

 

Despite so, headway can be and has been made, wrote Prof. Huang. Control on the capital account hasn’t hampered the two-way opening up of financial services, as evidenced by the increasing international foray of Chinese financial institutions and the arrival in China of foreign ones. Secondly, though some sensitive capital transaction items remain off limits, other items like investment in long-term treasury bonds have been granted specific investment channels. Thirdly, without full relaxation of the capital account, efforts can still be made through RMB offshore markets and central bank currency swap agreements to actively promote RMB internationalization.

 

Another way to expand global sway is leveraging Hong Kong’s role as a global financial center, said Prof. Huang. It should continue to do what it has been excelling at over the last 40 plus years: bridging China and the rest of the world in finance and trade services. And more can be tapped. For example, Hong Kong can be the center for Chinese households to manage their wealth and invest in financial assets of other countries, as well as act as the market for global investors to make transactions of China’s financial assets.

 

Prof. Huang also proposed that the government adopt concrete, pragmatic measures to beef up the global standing of its financial sector. One idea is to launch “Global South Green Development Plan’, which is comparable to the Marshall Plan in certain ways. Riding on the strength of its new energy industry (electric cars, lithium batteries, and photovoltaic products), China can use funding from commercial financial institutions, policy financial institutions and aids to support the green transformation of developing countries. As the Plan might require the central government to take on some debts, objection could arise in some corners. Yet Prof. Huang believed that as the central government’s public debts only amount to 23.8% of GDP, a moderate amount of additional debt will not result in fiscal risk; instead, it is a fiscally expansionary measure to augment overall demand while generating positive impact on international politics and economy.

Three Ways to Elevate International Influence of China’s Financial Sector

Jul 30-2024   



 

In a recent commentary, Prof. Huang Yiping offered three major suggestions for China’s financial sector to step up its global influence. He is Dean of the NSD.

 

The Central Financial Work Conference held in late October, 2023, first set forth the goal of accelerating the building of the country into a financial powerhouse. Prof. Huang believed that a financial powerhouse should have at least three qualities, namely high efficiency, stability, and international influence. The Central Financial Work Conference laid out specific measures to improve all three aspects.

 

Objectively, enhancing the global influence of the financial sector faces certain constraints, said Prof. Huang. He highly commended the remarkable development of the financial industry since the inception of reform and opening up, but also drew attention to a key question: how can such a domestically viable and efficient system dock with the international one? Another constraint is the unlikelihood of opening up the capital account in the near term.

 

Despite so, headway can be and has been made, wrote Prof. Huang. Control on the capital account hasn’t hampered the two-way opening up of financial services, as evidenced by the increasing international foray of Chinese financial institutions and the arrival in China of foreign ones. Secondly, though some sensitive capital transaction items remain off limits, other items like investment in long-term treasury bonds have been granted specific investment channels. Thirdly, without full relaxation of the capital account, efforts can still be made through RMB offshore markets and central bank currency swap agreements to actively promote RMB internationalization.

 

Another way to expand global sway is leveraging Hong Kong’s role as a global financial center, said Prof. Huang. It should continue to do what it has been excelling at over the last 40 plus years: bridging China and the rest of the world in finance and trade services. And more can be tapped. For example, Hong Kong can be the center for Chinese households to manage their wealth and invest in financial assets of other countries, as well as act as the market for global investors to make transactions of China’s financial assets.

 

Prof. Huang also proposed that the government adopt concrete, pragmatic measures to beef up the global standing of its financial sector. One idea is to launch “Global South Green Development Plan’, which is comparable to the Marshall Plan in certain ways. Riding on the strength of its new energy industry (electric cars, lithium batteries, and photovoltaic products), China can use funding from commercial financial institutions, policy financial institutions and aids to support the green transformation of developing countries. As the Plan might require the central government to take on some debts, objection could arise in some corners. Yet Prof. Huang believed that as the central government’s public debts only amount to 23.8% of GDP, a moderate amount of additional debt will not result in fiscal risk; instead, it is a fiscally expansionary measure to augment overall demand while generating positive impact on international politics and economy.