China’s Central Economic Work Conference has introduced the goal of building a “financial powerhouse” to achieve “high-quality financial development” for the country. This is the overarching policy orientation for the future development of China’s financial industry, which requires stability, self-improvement, and implementation of financial services to the real economy. Researchers at ANBOUND argue that high-quality financial development is more about the prudence of the financial sector and efficiency improvement in serving the real economy.
The financial industry’s future development will extend beyond state-owned banks to the entire financial sector, requiring financial institutions to balance profitability with serving the real economy. This requires addressing policy imperatives like narrowing interest rate spreads and reducing financing costs, which can present challenges for financial institutions.
The advancement of the financial industry toward high-quality development depends on achieving a balance between financial innovation and risk mitigation while simultaneously boosting the competitive edge of the financial sector. The Central Economic Work Committee emphasizes the need to recognize the infectious, concealed, and destructive nature of financial risks and emphasizes the importance of impractical and disorderly innovation.
China’s comprehensive supervision focuses on creating a regulatory framework with greater penetrative and traceable attributes. Structural reforms in the financial sector must harmonize with the requirements of economic supply-side structural reform, and attempts to exploit regulatory gaps for arbitrage will face stringent penalties in the coming years.
Chinese financial institutions must consider real-time constraints of regulatory red lines and enhance their risk identification capabilities to survive. Regulatory authorities have emphasized the need for financial institutions to demonstrate initiative, distinguishing between financing needs in different risk categories.
The Central Economic Work Conference has outlined directives to unlock financially underutilized resources and enhance fund utilization efficiency. Financial institutions must refine their asset-liability structure through strategic adjustments and reinvigoration of asset portfolios to ensure high-quality development in the financial sector, addressing risks and enhancing fund utilization efficiency in a growth-limited environment.
The high-quality development of the financial sector confronts the challenge of both mitigating and revitalizing “low-quality” high-risk financial assets. The development of the financial sector is an integral part of overall socioeconomic progress. Key aspects include establishing a modern financial system that suits China, fostering top-tier investment banks and institutions, bolstering large state-owned financial institutions, implementing comprehensive financial supervision, and adhering to a prudent monetary policy. The development focuses on the financial industry’s growth and its core objectives of serving the real economy and enhancing its capacity and efficiency.
