The Caijing Magazine Annual Conference: 2006:
Forecasts and Strategies was held on December 12 in Beijing,
attracting the active participation of leaders in government,
international organizations, business and academia.
Deputy Director of the Central Financial Work
Leading Group Liu He, Chairman of China Insurance Regulatory
Commission (CIRC) Wu Dingfu, Chairman of China Securities
Regulatory Commission (CSRC)?Shang
Fulin, Chairman of China Banking Regulatory Commission (CBRC) Liu
Mingkang and Governor of People's Bank of China (PBC) Zhou Xiaochuan made
contributions as follows:
Liu He: Six Emphases in Next Year's Economic Policies
Although China maintained sound economic development this year, two
new problems of overproduction and unbalanced imports and exports
still emerged and addressing them will be underscored in next
year's macroeconomic policies.
After a growth rate of 25.8 percent in 2004, fixed
asset investment is still expected to grow over 20 percent this
year.
Rapid increase in investment has caused
overproduction in industries like steel, cement, iron alloy, and
the problem is also looming in industries such as automobiles and
textiles, resulting in enlarged stockpiles and price drops.
The imbalance in foreign trade should also be
underscored in the coming year.
Due to slower import growth, domestic
overproduction and transfer of processing trade to China, trade
surplus this year is expected to reach US$100 billion.
China should increase imports of hi-tech products
in 2006 and include factors such as environmental protection,
safety and social security into enterprises' export costs.
The major goal of next year's macroeconomic
policies will be to maintain a fast and stable economy and fend off
periodic economic fluctuations. Six points should be
emphasized:
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Boost domestic demand and enable it to play a bigger role in
driving the economy forward.
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While adjusting the investment structure, put more emphasis on
expanding consumer demand. Further improve the domestic consumer
environment and create positive consumer expectations. Adjust
domestic income distribution, steadily raising the proportion of
middle-income group and augmenting the income of the low-income
group.
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While stabilizing export and adjusting export structure, expand
import by various means and international negotiations.
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While effectively utilizing foreign investment, continue the "go
out" strategy. On a mutual benefit basis, encourage domestic
enterprises to invest overseas and convert domestic savings into
investment.
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When China is facing the problem of overproduction, intensify the
adjustment of domestic supply pattern. Perfect the market
competition order and enhance the concentration level of industry
structure and organizations with price reform, anti-monopoly and
government function transformation as the emphases.
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Promptly improve social security systems. Rigorously enforce
environmental protection and safety standards and make enterprises'
internal cost manifest the genuine social cost.
Wu Dingfu: Insurance Industry's Four Opening up
Policies in 2006
China fully opened up its insurance industry to
foreign capital at the end of 2004. Four features in the opening up
of the industry this year are: internationalization of insurance
companies, internationalization of insurance business,
internationalization of insurance market and the
internationalization of insurance supervision.
More foreign-funded insurance companies emerge in
China. Large insurance companies in China such as China Life
Insurance, the People's Insurance of China and Ping'an Insurance
have been listed overseas, and many domestic insurance companies
are attracting foreign strategic investors.
China will fully open up its financial industry by
the end of 2006, putting China's insurance industry among more
fierce international competitions, and the absolute advantage of
international financial and insurance groups contrasts with China's
insurance industry's comparatively low operation and management
level.
China's insurance industry will continue its
opening up policy next year:
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Resolutely continue the opening up course of the insurance
industry. Promote development through reform and opening up.
Unremittingly fulfill the commitment to opening up the industry and
gear it to international standards.
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Give priority to key issues and optimize the structure. Introduce
foreign insurance capital into such fields as endowment insurance,
health insurance, agriculture insurance and responsibility
insurance. Support domestic and foreign-funded insurance companies
to set up branches for business operations in?central and
western part of China. Encourage and support domestic-funded
insurance companies to invite renowned international financial and
insurance groups as strategic investors and bring their role into
full play in improving corperate governance.
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Enhance the internationalization level of supervision. Intensify
and improve the modern insurance supervision system pillared by
solvency supervision, market behavior supervision and corporate
governance supervision. Bring forth new ideas into the supervision
system in accordance with the comprehensive financial operations.
Beef up cooperation with other supervision departments, promote
exchange on international insurance supervision and intensify
supervision coordination with the supervision departments at the
headquarters of foreign-funded insurance companies. Enhance
insurance exchanges and cooperation with neighboring countries and
regions to strengthen supervision of cross-border insurance.
Actively participate in the formulation of international insurance
regulations and supervision principles. Set up long-term personnel
exchange mechanism with international insurance organizations and
supervision institutes.
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Guard against risks and safeguard national financial and insurance
security. Based on the actual situation and bearing capacity of
China's insurance industry, give timely assessment of the risks in
the internationalization of the industry among international
competitions and implement relevant systems and measures. Closely
monitor the tendency in the international market and prevent
foreign-funded insurance companies from transmitting risks in
China's insurance companies. Strictly prohibit money-laundering
activities.
Shang Fulin: Four Emphases in Securities Supervision
China is stably implementing its split share
reform. By December 12, 339 listed companies have completed or
started the reform. The market value of these companies accounts
for 30 percent of the overall market value of companies listed in
Shanghai Stock Exchange and Shenzhen Stock Exchange.
China will intensify supervision over the market
from four aspects in the future.
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Actively develop the capital market. A profound and effective
capital market is crucial on the way to realizing China's
modernization and enhancing the comprehensive national strength.
Whether risks in operation, innovation and bankrupt can be
dissolved through enough direct financing can help avoid bad bank
assets accumulation and has a direct bearing on national economic
and financial security.
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Put emphasis on improving market functions. Giving play to the
basic functions of the capital market can make the state macro
control more flexible and effective, urge enterprises to enhance
their management and competitive strength and offer investors
opportunities to increase wealth. The basic functions of the
capital market should be?improved through basic policy
construction. Intensify the mechanism of the survival of the
fittest and guide listed companies to attach more importance to
system reform than financing and to returns than investment.
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Continuously strengthen building of infrastructural systems to
guarantee the market functions. While implementing share merge
reform actively and steadily, we need to solve deep-rooted
structural problems in the market to prop up stable market
operation.
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Actively promote market innovation to boost capital market and
raise its efficiency. In order to increase the ratio of direct
financing, we need to actively encourage market innovation in three
aspects: 1) establish multi-level capital market; 2) develop new
financial products in the favor of institutional investors; 3)
continuously improve transaction settlement system to provide a
safe, highly efficient and suitable service.
Liu Mingkang: Financial Derivatives
Encouraged
China Banking Regulatory Commission (CBRC) takes a
positive attitude toward the development of credit derivatives.
Credit risk, a major risk in banking sector, now poses the
biggest threat during China’s economic transition, and credit
derivatives involve the following three risks:
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Whether the trading partner of credit derivatives can shoulder its
obligations;
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Legal risk. The trading of credit derivatives has to comply with a
standard promulgated by the International Swaps and Derivatives
Association, but some newly developed derivatives are not regulated
in the standard. As financial derivatives are developed quickly in
many fields, the legal status of many trading partners is not
guaranteed.
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Some deals and derivatives are rather to transfer disastrous risks
or macro-economic risks than hedge credit risks, which make them
much more complicated.
As for market risks or even losses triggered by large-scale
financial derivatives, they can be attributed to the lack of
effective market risk management. It is not necessary to give up
derivatives to keep from possible risks, he warned, saying that
"risks exist for their uncertainties."
Three suggestions to strengthen risk control
are:
First, set up a scientific and effective risk
management system, including a risk identification, quantification,
monitoring and control system and a relevant internal control
system;
Second, have risk-transferring and hedging tools to
rate and disperse risks;
Third, strengthen market supervision and ensure
full information disclosure and explanations for possible
risks.
Commercial banks are asked to further improve their
risk management system and enhance its transparency. The commission
will encourage banks to conduct financial innovation and develop
more risk-transferring and hedging tools, so that they can control
and adjust risks initiatively.
Renminbi-denominated derivatives will be put
forward soon, and interest rate liberalization, which is being
implemented step by step, paves the way for it.
Zhou Xiaochuan: More Policy Support for RCC
Reform
China will give more policy support to help rural
credit cooperatives (RCCs) cast off their non-performing assets and
strengthen their competitive ability.
RCC is the major source of funds in the country’s
vast rural areas. There are about 30,000 RCCs, scattered across the
country. Since 2003, a program was launched to restructure the
mostly unprofitable RCCs. Key parts of the reform include
clarifying ownership structure, improving corporate governance and
shifting responsibility for the RCCs from the central to provincial
authorities.
Eight provinces and municipalities have been chosen
to conduct pilot program in this round of RCC reform, and then
their experiences have been extended to 29 provinces and
municipalities nationwide.
In Beijing, Shanghai and Guangdong, rural credit
cooperatives have been transformed into rural commercial banks.
Rural credit cooperatives are now enhancing their
capital base, reducing non-performing loans and improving the
quality of loans, and the State Council has decided to grant
certain stimulating measures to foster reforms.
For example, it will help them dispose
non-performing assets accumulated in the past years through
issuance of commercial bills or other policy tools.
(China.org.cn by Tang Fuchun and Yuan Fang,
December 20, 2005)