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China’s financial reforms boost real economy

Updated: Aug 10,2016 2:45 PM

In recent years, China has made historical progress in reforming its financial system. Regular involvement of private capitals in the banking industry, deepening market-oriented reform in interest rates and exchange rates, and the ongoing construction of a multi-level capital market are forming a diversified, mature and complete financial system, injecting more vitality into the real economy with better and efficient financial services.

In March 2014, the State Council approved five pilot private banks. By the end of the first quarter this year, the total assets of these banks reached 95.94 billion yuan (around $14.44 billion), up 20.8 percent compared to the beginning of the year, with a loan balance of 35.65 billion yuan (around $5.4 billion), up 51 percent from Jan.

In May 2016, the second group of private banks were approved. The approval of private banks has become a regular procedure, said Shang Fulin, head of the China Banking Regulatory Commission, implying more private banks would be in place.

“Small and medium banks and SMEs are natural partners”, said Yan Bingzhu, chairman of the Bank of Beijing. Private capitals will unleash financial market vitality and increase efficiency to solve financial headaches for SMEs.

In October 2015, the People’s Bank of China removed the cap on deposit rates, lifting controls on interest rates. “It is a milestone of market-oriented interest rate reform,” said Lu Lei, director of the central bank’s research bureau.

Meanwhile, major progress has been made in exchange rate formation mechanisms. In March 2014, China allowed the yuan to fluctuate two percent from one percent against the US dollar in the inter-bank spot foreign exchange market, and optimized RMB central parity rates in 2015.

According to the People’s Bank of China, more efforts are expected in the reform of interest rates and RMB central parity rates to increase the allocation efficiency of financial resources and optimize financial control mechanisms.

Along with the deepening of financial reform, more financial channels are made available for enterprises. By Aug 5, 8,147 companies have been listed in National Equities Exchange and Quotations, raising a total of 76.382 billion yuan (around $11.49) by issuing shares.

In the first quarter of this year, direct financing has reached 1.524 trillion yuan (around $229.3 billion), up 228% year on year, an increase of 12.3 percent in the share of incremental social financing.

“The reform enables enterprises to choose the right market for financing according to their demands in growth, share transfer, and financing.” said Zhao Xijun, deputy head of the School of Finance, Renmin University.