FinanceAsia Magazine

Issue: November 2013

A clear agenda of true reform must emerge now if China wishes to become a leader in global finance as it has become in manufacturing and trade. The aims should be to roll back the role of the state in the financial system in order to facilitate a culture of commercially based lending.

Tweaks such as removing lending-rate restrictions, raising the quota for qualified foreign institutional investors and turning parts of Shanghai into a free trade zone do not address the underlying challenges. Meanwhile banks face increasing pressure on earnings and capital ratios as they continue to lend to well connected borrowers for policy reasons.

This requires developing capital markets, to wean companies from their overdependence on bank loans. Deposit rates must be liberalised, both to boost per-income wealth as well as to force companies to pay market prices for access to loans. Such a move also suggests the need for a deposit insurance scheme for failed lenders.

Another step is to make it easier for private capital to obtain banking licences, with improvements in corporate governance and a more sophisticated regulatory system to prevent abuses. Allowing M&A among city and provincial financial entities enables a more effective financial industry. It is time for the Communist Party to let go of these levers of power.

The results of November’s important Party third plenum will take months or even years to truly become apparent; government at all levels will take time to digest the reforms. Much rides on President Xi Jinping’s ability to push through change. It is not clear the Party wishes to make substantial reforms, but expectations are rising.

Although reform must be bold, it need not be mindless: while the measures above would pave the way to opening its capital account, China should proceed cautiously with convertibility of the renminbi. China rightfully aspires for its currency to be a global reserve, but that would be the culmination, not the starting point, of financial reform.

 

 

About FinanceAsia Magazine

Established in 1996, FinanceAsia is the leading publisher of financial news in the Asia-Pacific region. Our combination of print and online products provide the latest news, analysis and insight into Asia’s financial markets.

Published monthly from our office in Hong Kong, FinanceAsia magazine provides our readers with the latest financial trends, interviews, features and investigative reports. The publication has a readership of key decision-makers at corporations, governments, investment and commercial banks, institutional investors, asset managers, brokers, traders and financial intermediaries.

Our regular sections include:

Data Story
We look at the key data behind a topical theme in Asian finance, showcased with an array of graphs and tables.

Greenshoe
A monthly opinion column from the FinanceAsia editorial team. We provide our thoughts on a topic making the headlines.

Deal of the Month
Our regular two-page spread with its signature artwork and in-depth analysis examines the equity, debt or M&A deal that we feel has had the biggest impact on the Asian capital markets that month.

Investor Dialogue
For company CEOs and CFOs, what investors think is a critical concern, and in this column we help them understand just this. Each month we speak to a Chief Investment Officer of a top fund and outline their views on corporate governance, what stocks they like and where they expect to generate the best returns.

Soapbox
A monthly opinion piece from a respected author or commentator on Asian business, finance or economics.

People on the Move
Here we summarise the key hires, fires and moves at the region’s banks, highlighting at least one major move each month.

Deal Tracker
We examine the major primary markets deals of the month and comment on the quality of the debt or equity transaction and the secondary market performance.

The Arts of Finance
A light-hearted look at investment opportunities surrounding the arts business in Asia.

 

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