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China's finance markets get major upgrade with reform

Editor: Li Kun 丨CCTV.com

11-19-2015 16:08 BJT

By Tom McGregor, CNTV Commentator

Are China's finance markets ready for the ‘Big Leagues?’ Stock exchanges in New York, London, Tokyo and Hong Kong have long been regarded as the premier hot-spots for global investors. Yet despite China laying claim to the world's 2nd largest, its stock markets are tightly-restricted to foreigners.

To compete internationally, Beijing is pushing ahead on much-needed finance reforms. Xinhua reports that, "China will modernize its financial market system in the next five years. "

Pan Gongsheng, deputy head of the People's Bank of China (PBOC), said, "More financial business will be carried out to make the market more elastic."

He believes the "healthy development" of internet financing, venture capital, private equity investment funds and asset management can attract more foreign investors to the Chinese stock markets.

Reforming at a steady pace

Embarking on pro-market reforms can rapidly expand the domestic finance sector, but could usher in waves of volatility creating investment bubbles - sharp increases and declines in the markets. Hence, Beijing intends to bring such reform mechanisms in a slow and steady manner.

China's central government had introduced its new reform agenda in 2013, which would focus on reducing trade and investment barriers, as well as liberalizing market tools and upgrading financial regulations to adapt to today's global economic conditions.

Historically, Beijing's finance reforms have been remarkable for its comprehensive framework and large-scale transaction volume, but weak on corporate governance and lack modernization upgrades, according to the Website, EconomyWatch.

Finance experts have called for China to restructure its economy to allow for more liquidity access for private-run companies in order for them to compete better in the marketplace.

Jumpstarting interest rates liberalization

A pivotal measure to level the playing field would be to implement more effective interest rates liberalization to create opportunities for small and medium-sized firms, along with consumers to participate.

The Chinese economy is transforming into a services sector-oriented one and that means higher consumption demand and more financial investments are impacting the country overall.

By liberalizing interest rates, the Chinese can enjoy more access to credit. And if interest rates are lowered that would spell more affordable loans for businesses. Savers would find it more attractive to buy into the stock market. Such liberalization efforts would help the domestic real estate industry as well.

RMB joins SDR basket

As the Chinese economy keeps going more and more global, the nation's currency, remninbi, RMB, has surged to become the world's fourth most-used payment currency, soaring above the Japanese yen in recent months, as disclosed by the global transaction services organization, SWIFT.

Beijing has applied for the RMB to join the International Monetary Funds' (IMF) Special Drawing Rights (SDR) elite basket of reserve currency. The IMF will make an announcement on the matter at the end of the month, but its chief director, Christine Legarde, has expressed her support in a public statement.

In response, "China thinks that the inclusion of the RMB into the SDR basket will strengthen the representativeness and the attraction of the SDR and that will also improve the existing monetary system," said the PBOC in a press release. "It will have win-win benefits both for China and the world."

Shanghai Stock Exchange gains higher status

Meanwhile, the Shanghai Stock Exchange can raise its stature in the eyes of the world, but reforms are necessary. Foreign investors require easier cross-border access to pour their funds into the markets, while more investment funds could reignite China's finance sector nationwide.

Yes, such efforts can cause potential harm, but without risk there are usually no rewards.



( The opinions expressed here do not necessarily reflect the opinions of Panview or CCTV.com. )



Panview offers a new window of understanding the world as well as China through the views, opinions, and analysis of experts. We also welcome outside submissions, so feel free to send in your own editorials to "globalopinion@vip.cntv.cn" for consideration.

Panview offers an alternative angle on China and the rest of the world through the analyses and opinions of experts. We also welcome outside submissions, so feel free to send in your own editorials to "globalopinion@vip.cntv.cn" for consideration.

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