China’s FSDC Flags Policies to Drive Capital Market Growth, “Triangular” Financial Framework


China’s Financial Stability and Development Committee (FSDC) said that it will launch policies to expedite the development of the country’s capital markets, as well as stressed the implementation of a “triangular” financial system.

The meeting of the State Council’s FSDC convened by vice-premier Liu He on 20 October stressed the key role played by capital markets with regard to stabilising the economy, stabilising finance and stabilising expectations, as well as the need firmly pursue marketisation and accelerate improvements to the basic system of the capital market.

According to Liu policies that have already been researched and confirmed will be launched as soon as possible, and the Chinese central government will pursue in-depth research into major reform measures that will benefit the long-term, healthy development of capital markets.

State media said that five points highlighted by the meeting include:

  1. Balancing stable growth and risk prevention, and the creation of a triangular support framework.
  2. The implementation of stable and neutral monetary policy; the pursuit of stable growth and deleveraging.
  3. Strengthening the vitality of micro-economic actors, and resolving the financial difficulties of small and medium-sized enterprises and private enterprises.
  4. Effectively employ the “hub” role of capital markets…”capital markets play a key role in stabilising the economy, finance and expectations.”
  5. Implementation of policies announced on 19 October to stabilise markets, improve basic systems, encourage long-term funds to enter the market, expedite the reform of state-owned enterprises and the development of private enterprises, and further expand opening.

With regard to the “triangular framework” mooted for the first time by FSDC, Pan Xiangdong (潘向东), chief economist at New Time Securities, said that in 2018 monetary policy has kept liquidity at “rationally ample levels,” but this has not been effectively transmitted to China’s real economy due to slowing growth, heightened credit risk, a reduction in the risk preferences of banks, and the use of funds to accumulate short-term assets.

As a consequence the FSDC will make “strengthening the vitality of micro-economic actors” and effectively employing the role of capital markets part of a “triangular support framework” alongside the implementation of stable and neutral monetary policy, in order to resolve the financing difficulties of enterprises and better achieve stable growth.