The former vice-chairwoman of the 10th Standing Committee of China’s National People’s Congress said one of the byproducts of the breakneck growth of the country’s financial sector in recent years has been an over-financialisation of the Chinese economy.
“The trend of over-financialization of our nation’s economy has already appeared,” said Gu Xiulian at the 5th Chinese Small-to-Medium Enterprise Investment and Finance Exchange on 19 July.
“On the one hand it’s manifested as the abrupt spread of financial phenomena – the widespread emergence of various type of new finance financial institutions or finance-type institutions, and the alarming spread of the financial trend across the populace.
“On the other hand, some financial institutions a suffer from a trend of internal circulation and ‘avoiding the real and moving towards the empty.’ in addition to this, priorities in the relation ship between financial investment and real investment have been up-ended, creating major negative effects for the growth of the real economy.”
The remarks by Gu Xiulian, the former Governor of Jiangsu Province from 1983 and 1983 and Minister of Chemical industry from 1989 to 1998, were widely publicised within China via an article carried in the official flagship publication of the Chiense central bank (人大常委会副委员长：经济过度金融话倾向已经出现.)
According to the People’s Bank of China article “China currently needs to resolve the problem of excess financialization, the prevent capital ‘avoiding the real and moving towards the empty.'”
The PBOC articles flags heavier government intervention in the Chinese financial sector as part of efforts to re-direct its focus towards servicing of the real economy.
“With respect to the problem of how finance can return to serving the real economy, industry experts believe that the fundamental principle is raising the focused capability of financial services, strengthening policy and guidance of financial institutions, expanding the support of focal areas and weak links with respect to the real economy…reducing corporate [debt] burden and costs, giving enterprises that engage in real operations obtainable profits, and guiding capital and factors of production to gather in the real economy.”
The article touts the efforts of China’s central government to bolster financial support for the real economy, with the Ministry of Industry and Information Technology and the Postal Saving Bank of China executing a SME financial services strategic agreements worth 27.5 trillion yuan and providing 13.6295 million loans, and MIIT working with PBOC and other departments to create a special plan that provides accounts receivable financing to micro-enterprises in existence for three years.
“This has raised the obtainability of finance for SME’s and reduced financing costs,” said Qin Zhihui, vice-head of the SME department of MIIT.