Improving resource allocation efficiency high on plenum agenda, experts say

Lujiazui, the financial center in Shanghai, forms a perfect backdrop to the Bund area. [Photo by Wang Gang/For China Daily]

China's new round of financial reform is expected to focus on improving the financial system's ability to better support the country's modernization drive, with a priority on bolstering technological innovation and the broader real economy, said financial experts and executives.

Also expected to be high on the agenda of the unfolding reform are intensifying financial regulation and strengthening the crackdown on violations to fend off financial risks, as well as deepening financial opening-up to improve resource allocation efficiency, they said.

Their comments come at a juncture when the market eagerly waits to see how China will set the tone for the road map for future financial reform and opening-up at an upcoming vital reform meeting — the third plenary session of the 20th Communist Party of China Central Committee, which is scheduled to be held in Beijing from Monday to Thursday.

Early this year, President Xi Jinping urged efforts to accelerate the building of a modern financial system with Chinese characteristics at the opening of a study session at the Party School of the CPC Central Committee (National Academy of Governance).

Xi, who is also general secretary of the CPC Central Committee, emphasized that the path of financial development with Chinese characteristics adheres to the fundamental purpose of serving the real economy and takes preventing and controlling risks as the eternal theme of financial work.

Tian Xuan, associate dean of Tsinghua University's PBC School of Finance, said that one of the core objectives of China's financial reform should be building a modern financial system that efficiently serves the real economy, especially when it comes to financing innovative emerging sectors at lower costs, in order to support technological innovations and nurture new quality productive forces.

He said the country's financial reform is expected to feature strengthened regulation to fend off any systemic risks, with the focus being on financial fraud crackdown in the capital market as well as on deficiencies in the supervision and governance of small and medium-sized financial institutions.

"Our financial markets are still developing and not yet mature. We need the government to play its role well to correct market failures," said Tian, who is also a deputy to the National People's Congress, the country's top legislature.

Tian said he expects the upcoming plenary session to introduce reform measures aimed at further developing venture capital — investment funds that invest in startups for long-term growth and are among key accelerators of technological innovation.

A meeting on April 30 of the Political Bureau of the CPC Central Committee, which was presided over by Xi, called for efforts to actively develop venture capital and strengthen "patient capital", or investment that generates healthy returns in the long run.

The emphasis on venture capital has reflected China's broader efforts in capital market reform. China's financial system is now dominated by the banking industry, yet the capital market is seen as more capable of supporting innovation activity. This makes further capital market development an integral step for China, in order to ensure that the financial system becomes more capable of serving its modernization pursuit, experts said.

In April, the State Council, China's Cabinet, released a guideline that rolled out nine measures to promote high-quality development of the capital market, drawing up a blueprint for the market and featuring an intensified crackdown on securities violations and strengthened investor protection.

Wu Xiaoqiu, dean of Renmin University of China's National Academy of Financial Research, said the guideline has set the right tone for future capital market reform, urging "tough laws and harsh punishments" to stem violations and address the prominent issues of fraudulent listings and false disclosures.

The compensation system for small investors affected by those malpractices and induced delistings should also be improved on both the civil and judicial fronts, Wu said.

China's A-share market rallied on Thursday, with the benchmark Shanghai Composite Index rising 1.06 percent on Thursday to close at 2,970.39 points, following a policy measure issued on Wednesday to restrict short-selling.

At the Central Financial Work Conference in November, Xi called for giving full play to the pivotal role of the capital market, advancing the registration-based initial public offering system and steadily expanding institutional opening-up in the financial sector.

Experts also underlined the need for China to widen opening-up to strengthen the financial system's ability for resource allocation, expecting the upcoming reform meeting to call for ensuring a transparent, predictable regulatory environment for foreign investors and reinforcing the role of Hong Kong as an international financial hub.

Zhang Xiaoyan, a chair professor of finance at Tsinghua University's PBC School of Finance, said she expects the country to further drive financial opening-up to attract more foreign institutional investors, whose global perspective and investment expertise will help channel more resources to technological companies with real strength.

Thierry Leger, CEO of Paris-based global reinsurer SCOR, said that China's step-by-step financial opening-up has helped shape a high level of confidence, and it is important for the country to continue to build a stable regulatory environment for foreign investors.

Eugene Qian, China country head of UBS and chairman of UBS Securities, said the Swiss financial giant, having benefited from China's capital market reform and opening-up, will continue to leverage its international experience and local expertise to support China's further reform in the capital market.