Sound, Circular and Healthy Development of the Economy and Finance

Sound, Circular and Healthy Development of the Economy and Finance*

July 14, 2017

Finance is a core competitiveness of a nation. Financial security is an important component of national security, and the financial system is a basis for economic and social development. CPC leadership over finance must be strengthened. Following the general guidelines of making steady progress and the law of financial development, we should focus on three tasks: serving the real economy, preventing and controlling financial risks, and furthering financial reform. We should innovate and improve financial control, the modern enterprise system for financial businesses, and the financial market, build a modern financial supervisory framework, continue to transform the growth model of finance, strengthen the rule of law in the financial sector, ensure state financial security, and facilitate the sound, circular and healthy development of the economy and finance.

Since the 18th CPC National Congress, we have seen new and important achievements in financial reform. These include: the rapid development of the financial sector, a larger variety of financial products, financial services that benefit more people, orderly implementation of financial reform, an improved financial system, new breakthroughs in internationalizing the Renminbi and two-way opening up of finance, enhanced financial supervision, and strengthened capability in guarding against systemic financial risks.

Work in the financial sector should be done in accordance with these rules:

First, finance should return to its original purpose and serve the development of the economy and society. The ultimate goal of the financial sector is to serve the real economy. It should improve its overall efficiency and competence, allocate more financial resources to key areas and weak links of social and economic development, and respond to the diversified needs of the people and the real economy.

Second, we should improve the structure, market, organizations, and products. Attention should be paid to quality development of the financial sector, which needs to grow in coordination with the economy and society. We will focus on facilitating financing, reducing the costs of the real economy, enhancing the efficiency of resource allocation, and ensuring that risks are under control.

Third, supervision should be strengthened to prevent and defuse financial risks. To achieve this, we will develop relevant laws and regulations, improve the corporate governance structure of financial institutions, and strengthen macro-prudential management and supervision of functions and conduct.

Fourth, the financial sector should be market-oriented, and the market should play the decisive role in allocating financial resources. We must ensure that our market economy reform is socialism-oriented, properly handle the relationship between the government and the market, improve the market restraint mechanism, and increase the efficiency of financial resource allocation. We must strengthen and improve macro control by the government, improve market rules, and tighten discipline.

Finance is the lifeblood of the real economy. Serving the real economy is the duty and mission of finance, and also the fundamental means of preventing financial risks. We should follow the new development concepts, emphasize quality and efficiency, reassemble stock on the supply side, optimize increments, and change growth drivers. We should prioritize direct financing, and develop a functional and solidly-based multi-layer capital market which is effectively supervised and where the legitimate rights and interests of investors are duly protected. We should improve indirect financing institutions, promote the strategic transformation of large state-owned banks, and develop small and medium-sized banks and private financing institutions. We should urge the insurance industry to continue to provide long-term and stable services in risk control and insurance. The state will build a financing system that benefits all, and strengthen financial services to small and micro businesses, agriculture, rural areas, farmers, and remote areas. We should facilitate finance-driven targeted poverty alleviation, and encourage green finance. We should urge financial institutions to reduce operational costs. Intermediate businesses will be put under regulation to avoid elevating financing costs for the real economy.

Preventing systemic financial risks is the eternal theme of the financial sector. Priority should be given to preventing and defusing systemic financial risks, and effective measures should be taken to spot any risks and address them early. Focus should be put on preventing risks in key areas, and improving financial security mechanisms and emergency response mechanisms. We should deleverage the economy, continue with prudent monetary policies, and properly handle the relations between steady growth, structural adjustment, and total volume control. Top priority should be given to deleveraging in SOEs, and "corporate zombies" with minimal prospects of recovery should be dealt with. Local Party committees and governments must have a correct attitude towards achievements, harness incremental debt of local governments, employ a lifelong liability mechanism, and track those responsible for mismanagement committed while in office. Resolute measures will be taken to punish acts severely disturbing the financial market, regulate financial market transactions, supervise comprehensive management of finance and industry-finance capital integration, strengthen oversight of internet finance, and emphasize financial institutions' primary responsibility in guarding against risks. We will build a social credit system and improve the legal framework of the financial sector in light of actual conditions.

We must further financial reform, improve the system of financial institutions, management of state finance and capital, and the system and mechanisms of the foreign exchange market; improve the modern enterprise system for financial businesses, the corporate governance structure, and the equity ownership mix; establish an effective incentive-and-restraint mechanism, strengthen the mechanism of internal risk control, and enhance external market constraint; better coordinate financial supervision, and enforce supervision on weaker links. The State Council will set up a committee on financial stability and development, and the People's Bank of China will strengthen its role in macro-prudential management and preventing systemic financial risks. While recognizing that financial management falls on the authority of the central government, local governments should take on more responsibility in handling risks locally, in accordance with unified rules set by the central government.

Financial management departments should fulfill their duties, and diligently supervise financial activities. They must be courageous and professional, and strictly enforce accountability. Failure to spot risks timely means dereliction of duty, and failure to warn against and deal with risks promptly constitutes malfeasance. We will improve the early-warning and intervention mechanism, rigorously strengthen coordination, supervision, and interconnectivity of financial infrastructure, and promote the sharing of comprehensive statistics and supervision information of the financial sector.

The financial sector must continue to open up. We will continue to reform the Renminbi exchange rate mechanism, promote internationalization of the Renminbi, and achieve capital account convertibility; steadily open up the financial sector to the world, arrange the sequence of opening up for different areas, and build a mechanism that protects the rights and interests of financial consumers, helps with the orderly competition of finance, and is conducive to preventing financial risks; be innovative in financing the Belt and Road Initiative, and design relevant mechanisms to this end.

To promote work on finance in the current era, we must follow the unified leadership of the Party, so as to ensure the correct direction of financial reform and development and financial security for our nation. It is a must to run the Party with strict discipline, improve the leadership of the financial sector, and strengthen supervision over key posts and personnel, especially over those first in command. We should strengthen the role and structure of the Party within enterprises. Education in our ideals, convictions, the Party spirit, and in observing discipline should be carried out; sound Party conduct and clean government should be enforced. There should be more efforts in training, selecting and using financial professionals with firm political beliefs, good record, and professional expertise, with special emphasis being given to fostering high-end financial professionals, so that we can develop a contingent of high-caliber financial personnel with moral integrity and professional competence.

* Main points of the speech at the National Conference on Finance.

(Not to be republished for any commercial or other purposes.)