China’s financial sector: reform and development

Since the 18th National Congress of Communist Party of China (CPC), China has made impressive achievements in the financial sector and achieved new leapfrog growth in the banking and insurance industries.

A virtuous circle of the real economy and the financial system has taken shape. Over the past decade, the average annual growth of bank loans and bond investments was 13.1% and 14.7%, respectively, roughly matching the growth of nominal GDP. And the insurance density increased from 1,144 RMB per capita to 3,179 RMB per capita. The serious disease insurance system has covered 1.22 billion residents in urban and rural areas since its establishment in 2012.

The risk protection provided by agricultural insurance for agricultural households increased from 0.9 trillion RMB in 2012 to 4.7 trillion RMB in 2021. The annual average growth of inclusive loans for small and micro enterprises was 25.5%, and that of loans for supporting agricultural production, development of rural areas, and agricultural population was 14.9%, both much higher than the average loan growth. In addition, a significant increase has been seen in both the coverage and accessibility.

Reform and opening-up in the banking and insurance sectors have taken on a new look. Continuous efforts have been made to improve the corporate governance of financial institutions and the reform of small and medium-sized banks and rural credit cooperatives has been deepened.

Transforming China’s foreign trade

Major progress has been made in the pilot reform of the pension system, with the exclusive commercial endowment insurance piloted nationwide. More than 60 billion RMB in pension wealth products had been subscribed. Over the past ten years, China has adopted more than 50 policies to expand opening-up in the banking and insurance sectors. In 2021, the total capital and assets of foreign banks in the Chinese market both increased by more than 50% in comparison with 10 years ago, and those of foreign insurance companies in China have grown 2.3 times and 7 times, respectively.

Many professional banking and insurance institutions, such as foreign wealth management companies and foreign assets management companies, have been actively participating in the development of China’s financial market.

Important achievements have been made in forestalling and defusing major financial risks. Departments of financial supervision and regulation resolutely took actions to prevent and resolve financial risks, with the blind expansion of financial assets fundamentally reversed. High-risk shadow banking has been reduced by about 25 trillion RMB compared with the historical peak, while a total of 16 trillion RMB of non-performing assets have been disposed of in the past decade. Many prominent risks were defused, and illegal activities in the financial sector were severely punished.

An environment of strict supervision and regulation has been fostered. China has formulated and revised more than 70 laws and regulations. Substantial results have been made in legal construction of financial sector. Marked improvement has been seen in the country’s capacity for supervision and regulation in accordance with the law.

So far, the identities of a total of 124 stockholders who breached laws or regulations have been disclosed to the public. Through various ways, China severely punished the activities violating laws or regulations committed by banking and insurance institutions and persons responsible, so as to address the prevention of financial risks and crack down on financial corruption through a systemic approach.

In the future, China will uphold and strengthen the CPC’s overall leadership over finance and steadfastly follow the path of financial supervision and regulation with Chinese characteristics.

Copyright Business Recorder, 2022