The head of the People’s Bank of China has said the country should further open up its financial sector in order to expedite industry-wide improvements that can help to prevent the onset of future crisis.
Speaking at the 2017 Lujiazui Forum in Shanghai, Zhou Xiaochuan dwelt at length on the need for China to open up its financial sector in order to improve the competitiveness and capability of domestic players.
“China has established a socialist market economy which achieves economic and social progress and prosperity by means of competition and the optimised allocation of resources,” said Zhou. “During this process, opening up has played a key role.
“The opening up of the manufacturing sector enabled China to become the factory of the world. The manufacturing sector opened up relatively early in China, and at an early period also became competitive.
“My observation of the opening of the manufacturing sector is that most of the industries that participated in opening and competition at an earlier stage rapidly developed and strengthened, and became highly competitive.”
Zhou said that the same economic principles were applicable to China’s services sector, and by extension to the financial sector as one of its key segments.
“The opening of China’s services sector embodies principles similar to those in the manufacturing sector…it has also promoted business efficiency and upgrades to service quality by means of opening up to the outside and the introduction of competition,” said Zhou. “The financial services sector is a competitive services sector, and finance is a key component of the services sector.
“The experience of global financial crises has shown us that their prevention first requires guaranteeing the health of financial institutions, and no accommodation of phenomena such as high leverage, low capitalisation or non-performing loans. Yet [industries] that are less open and less competitive will often indulge these low standards.
“It’s become very clear that the financial sector is a competitive market service sectors. Looking at things globally, the absolute majority of financial sectors are competitive industries.
“When China first began to introduce foreign-invested banks, what we wanted was capital. Looking back, domestic commercial banks were able to study many things from competition, providing China’s financial sector with a series of changes with respect to products, market establishment, business models and management experience. The business productivity, asset quality and corporate management of domestic banks also increased significantly by means of competitive share reforms and listings.
“The experience of many countries including China itself clearly indicates that protectionism leads to sloth…[we] must firmly walk along the path of external reform. From the experience of opening up the manufacturing and services sector we can deduce that the financial sector is no exception, and the similar application of competitive and opening principles will enable the financial sector to see even better development.
“I believe that with the robust support and joint diligence of all parties, China can definitely ascent to a new stage of external opening, and that the trial and promotion of the Shanghai Free Trade Zone, as well as the establishment of China as an international financial centre, will obtain new accomplishments.”