What will the recent eleven financial reform measures mean for China’s economy?

Recently, the Finance Committee of the State Council of China launched 11 financial reform measures. What impact do they have on the future economy of the Chinese country and on the lives of ordinary people?

Recently, the Finance Committee of the State Council of China launched 11 financial reform measures.

The Financial Commission of the State Council is not well-known. It was established less than three years ago, but its members include the National Development and Reform Commission, the Ministry of Finance, the Central Bank, the China Insurance Regulatory Commission, and the China Securities Regulatory Commission.

The 11 measures are mainly about directions, and they have no specific implementation details. Therefore, these rules will require specific regulations to be issued by the member departments in the future.

What impact do they have on the future economy of the Chinese country and on the lives of ordinary people?

The first measure is the introduction of the evaluation method of financial services to small and micro enterprises by commercial banks. This rule is likely to be implemented by the China Banking and Insurance Regulatory Commission (CBIRC). Small and micro enterprises will support employment rates, but they often do not have an advantage in financing.

This is to encourage commercial banks to increase their loans and support to small and micro enterprises. But they need to have standards and evaluation systems. CBIRC will examine how well commercial banks support SMEs.

This set of rules will bring benefits for small and micro enterprises. In the future, financing for small and micro enterprises will be easier.

The second is to introduce a plan for SMEs to deepen reform and supplement capital. This is mainly to prevent systemic financial risks.

Some small and medium-sized banks have a relatively small volume and weak anti-risk capabilities. Some time ago, a bank run occurred for a bank in Lanzhou. Many ordinary people rely on small and medium banks for banking services. If these banks have systemic risks, the impact on society will be huge.

The third rule is to issue guidelines for performance evaluation of government financing guarantee institutions.

Government-funded guarantee and re-guarantee agencies may not be known by many. But when some farmers in rural areas want to borrow money to develop agriculture, they would turn to these agencies, many of which are actually government funded.

This time, government guarantee institutions at all levels are encouraged to focus on supporting small and micro enterprises, support farmers to reduce guarantee rates, to mitigate the risks. This makes it easier for farmers and small businesses to raise funds, and there are government agencies behind them to guarantee them.

The fourth is the introduction of four regulations on the GEM initial public offering (IPO), on registration system and management measures. Before the GEM, registration system reform is also discussed, so this rule is just to speed up the progress of adopting the new system. It is expected that the reform of the GEM registration system will be implemented this year.

Its long-term impact on the stock market is positive. If the registration system is implemented, the threshold for companies to go public is lower, but this also requires companies to be meet the requirements of integrity.

This is a very good promotion of the entire socialist market economy system. The country’s tax revenue is also guaranteed, and there would be more competition among companies.

The fifth is the issuance of guidance on the conversion for listings in different boards. This involves the New Third Board, which involves some small and medium-sized enterprises and micro-enterprises, which can give enterprises more space to transfer.

The sixth is the introduction of standardized bill management methods, in fact, to speed up the construction of the market and enable various commercial bills can be effectively circulated.

What are the benefits? This would greatly improve various efficiencies in the exchange of funds between enterprises. In fact, many companies have not enough money to do business. Now this convenient financing channel is almost an easy channel for financing, so it is greatly beneficial to enterprises.

The seventh rule is to issue standardized bond asset recognition rules. Treasury bonds, corporate bonds and government bonds, as long as they can be listed and traded, are called standardized debt assets. Relatively speaking, those debt assets that cannot be listed and traded are called non-standard assets.

Now the introduction of the rule is to convert some non-standard debt assets to standard ones as much as possible. Some who could not issue bonds before can do that now, further expanding financing channels.

Eighth, it is the business guidelines to further improve disclosure requirements for panda bonds, and refine the rules for issuing panda bonds.

Panda bonds are RMB bonds issued by foreign financial institutions in China. Foreign financial institutions can raise RMB in China to expand China-related business.

Therefore, accelerating the development of the panda bond market is of great benefit to our country’s opening up.

Ninth, it will promote the credit rating industry to further open to the outside world. The credit rating industry is too important. In the final analysis, the market economy is a credit economy.

There are now three authoritative rating agencies worldwide: Moody’s, Standard & Poor’s, and Fitch. Our country’s credit rating is very backward, so we must learn from others.

This is also when China opened its financial market on April 1st, and it was also happy to introduce foreign rating companies. This can help China’s rating companies and promote the rating industry to further open to the outside world.

The tenth is to guide the standardized and orderly development of the CPA industry. There are many companies in China currently doing fake account-keepings. China’s accounting industry has not developed well.

This article is of great significance to a fairness market economy, orderly market competition, and the construction of an integrate society.

The last rule is to issue an opinion on strengthening administrative penalties for financial violations.

For a long time, China has been more tolerant of the illegal attitude of the financial
industry. After the revision of the previous securities laws, the maximum penalty for financial violations is 20 million. This is still very light, so we have to strengthen the opinions of administrative penalties for financial violations.

Disclaimer: This is an article created by Michael Liang for Chinasdg.org. You can find the original article here: https://chinasdg.org/2020/06/02/what-will-the-recent-eleven-financial-reform-measures-mean-for-china-s-economy/.

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