context: As of end 2017, foreign banks accounted for only 1.28% of the total assets of China's banking financial institutions. Xi heralded a new round of economic opening up in his speech at Boao, and central bank governor Yi Gang 易纲 followed up with concrete initiatives for the financial sector. It remains to be seen, however, just how top-level advocacy will translate to concrete policies.
Countering the view that excessive cross-border financial services would increase the chance of defaults, Lian Ping 连平 Communications Bank chief economist believes that stable bank asset management and sound financial supervision make defaults unlikely in the process of opening up the financial sector. Instead, more cross-border services will bring China the benefits of optimized resource allocation and healthy sectoral development. Therefore, the current opening up is well timed, adds Lian.
Since 2007, China’s financial regulators have made several big changes, according to The Paper, including
- strengthening regulation with an eye to preventing financial risks
- increasing interagency coordination via overarching agencies and cross-appointments (most recently establishing the Financial Stability Development Committee and appointing Guo Shuqing to positions at both the central bank and China’s Banking and Insurance Regulatory Commission)
- building a 'dual pillar' of macroprudential assessment framework and a new monetary policy framework
When there are large changes in short term international capital flows, crises like the Mexican peso crisis and Asian financial crisis of the 1990s may follow. However, China is unlikely to experience a financial crisis because its central bank, People's Bank of China, can dynamically adjust banks' foreign exchange management measures and employ countercyclical macroprudential policies, says Lian. Since China joined the WTO, Lian argues, sectors more open to the outside world and active in the allocation of global resources have generally developed better and become more competitive.