WHAT THEY ARE SAYING
Evidence of China’s realization that it would be very helpful for it to change its capital market structure and rules can be found in the writings of influential govt. officials, educators and prominent business persons. Following are highlights taken from speeches or articles that these officials have had published.
Direct
Investment - The
main causes for the increasing direct investment are the smooth economic
development, the enforcement of utilizing foreign investment, the improvement of
investment environment, and the development of China's economy in contrast to
global recession. The decrease of outflow is mainly caused by the decreasing
growth of deferred gathering provided by trade credit when it compares to the
same period of last year. (by Han
Hongmei, Vice Director, Balance of Payment Department, State Administration of
Foreign Exchange)
FOREX Market – The number and activities of market participants are the determining factors of the efficiency and vitality of a market. Permission for diversified participants to enter is an important step on the way to a mature forex market. The increase in the number of market participants can advance the diversification of market participants, enhance the competition among banks, and form the price-finding mechanism and reasonable price-fixing mechanism. Therefore, the commission charged for interbank forex transaction can be reduced to allow more and more non-bank financial institutions and foreign banks to enter the interbank forex market, develop forex intermediaries, and introduce forex brokerage system, etc.
The primary task is to take full advantage of the existing range of 0.3%, and allow the exchange rate fluctuate one or two percent every day, sending an important signal to the market that the central bank is lessening its intervention, making it convenient for the market to realize exchange rate risk.
Considering the diversification tendency of international forex market and foreign trade of China, China should properly give up the nominal exchange rate fluctuation and stick to the real rate. Whether the Central Bank maintain or decrease the intervention frequency, it will help the Central Bank improve its exchange rate policy operation and truly reflect the requirement on exchange rate by real economy. . After the expansion of exchange rate fluctuation range and gradual pursue of the voluntary forex selling and buying system, the Central Bank should decrease the frequency of market intervention, implement brokerage system, and trade thorough commercial banks or other intermediaries.
The Central Bank should gradually shift to use monetary policy lever like interest rate and money supply to influence the exchange rate, take forex policy as part of the monetary policy, and keep the coordination between exchange rate policy and monetary policy.
(by Dai Shihong, Chief, Forex Market Section of BOP Department, State Administration of Foreign Exchange)
STRENGTHEN MONEY MARKET CONSTRUCTION, PROMOTE STABLE AND RAPID DEVELOPMENT OF COMMERCIAL BANKS
The market, with increasingly active transactions, has provided a platform for the liquidity management of financial institutions, thus raising the liquidity of the whole financial system. The flourishing money market has promoted financial liberalization and interest rate marketization, and paved the way for the further integration of the domestic and international financial markets.
The money market has introduced to commercial banks a concept of regulated fund operation, which guarantees both liquidity and profitability. The market provides a convenient platform for commercial banks' asset-liability management, where they can take the initiative to adjust the term and interest rate structure of their assets and liabilities based on their forecast of interest rate movement, and so as to control interest rate risk and liquidity risk resulting from the mismatch of asset and liability positions. A gradually improved and regulated money market also paves the way for the innovation and internal control of commercial banks. Trading instruments should not be limited to traditional ones, new products and businesses should be introduced, such as forward trading, government bond futures, and bond funds. (by Wang Chuan, President, China Everbright Bank)
COOPERATION BETWEEN BANKING AND THE SECURITIES SYSTEM：THE TREND OF CHINA’S FINANCIAL SYSTEM
The transaction volume of financial products, especially that of the securitized ones, plays a dominant role in the global economy. This indicates that finance, especially the capital market, will be increasingly significant. Increasingly, the flow and allocation of resources will be guided by securitization. Therefore, a regulated and sophisticated capital market indicates that a modernized financial framework has come into being.
A risk-filtrating mechanism should be set up to prevent the risks of the capital market from being transmitted to the commercial banking system. Once the necessary basis of risk aversion regulation has been established, commercial banks should expand their businesses to the marginal, core and even derivative part of the capital market. The securitization of banks' capital is the first step towards integration of commercial banks into the capital market.
(By Prof. Wu Xiaoqiu, Director of Financial and Securities Research Institute, Renmin University of China)
ACCELERATE THE DEVELOPMENT OF SECURITIES INDUSTRY
China's entry into the WTO means China must abide by its agreements and open up all financial industries including the capital market, step by step on the basis of fair competition. The introduction of foreign experience and technology will shorten the gap between Shanghai and international front edges. The increasingly fierce competition will also drive domestic securities companies to restructure or upgrade their organization, technology and management, thus bringing Shanghai's financial institutions in line with the international practice.
Cooperation among financial industries is of great significance. Firstly, the cooperation can lay a foundation for mixed operation in the future. Secondly, financial industries can share resources and take advantage of each other's strengths. Each financial industry has its own advantage, which is quite complementary to each other, such as the customer network of banks, funds of insurance companies, and technology and business of securities companies. Thirdly, the penetration of non-securities financial institutions into the securities industry can accelerate the further division and specialization of the securities industry. (by Dr. Feng Guorong, President, Shenyin&Wanguo Securities Co., Ltd.)
INDEX FUTURES AND BUSINESS INNOVATIONS OF SECURITIES COMPANIES
Insurance companies and large state-owned enterprises are the main components of the customer base of asset management business in China. With a high requirement on the security of funds, they can hardly accept the existing asset management that cannot guarantee their principal. With stock index futures, however, securities companies could control risk and expand the scale of asset management, introduce conservative products with ensured profits or aggressive products with high risks and profitability. In this way, securities companies would only charge for portfolio services, transferring risks to customers. Thus, revenues of this business will be solely determined by the research and innovation capability of securities companies.
Stock index futures will become an important instrument for hedging during drastic falls of stock market for securities companies. If the position held by a securities company is relatively high, the securities company may find it hard to sell out the stocks during the fall of the stock market. If stock index futures is introduced, it can offset most of the risks by selling short stock index futures equivalent to the position it hold. Stock index futures can avert the systematical risks caused by market fluctuations during the stock issuing. Besides, practices in western countries show that the introduction of stock index futures can promote the development of other derivative instruments, which is of significance for the development of new investment banking businesses. (by Dr. Xie Jianjun, Deputy Director, Research Institute, Guotai Junan Securities Co., Ltd.)