By Ouyang Jie
China has seen new highlights in its financial industry. FTSE Russell, one of the world’s three main bond index providers, announced recently that it will add Chinese government bonds to the FTSE World Government Bond Index.
The move will enable international investors to enter the Chinese bond market through FTSE Russell’s flagship index. So far, the world’s three major bond index providers have successively included Chinese sovereign bonds into their main indexes.
China has notably accelerated the opening-up of its financial sector in recent years. The country has announced over 50 measures that help open the sector wider, including significantly widening the business scope of foreign financial institutions and removing foreign ownership limits in banking, securities, fund management, futures, and other fields.
These measures also included granting foreign-funded institutions national treatment in credit investigation, credit rating and payment, and accelerating the opening-up of the insurance industry.
China’s accelerating opening-up of the financial industry reflects its confidence in the sector.
The opening-up of the financial sector has become an important part of a new round of opening-up in China, which demonstrates the country’s sense of responsibility as a contributor to economic globalization and serves the sector’s development and China’s own needs for high-quality economic development.
An open financial market features fair competition and mutually beneficial cooperation. Chinese and foreign financial institutions have achieved win-win cooperation and realized common development in the process of opening-up. Foreign financial institutions have not only served the development of enterprises from their own countries in China, but also established close ties with Chinese enterprises. Meanwhile, domestic financial institutions have also constantly improved themselves in cooperation and competition with their foreign counterparts.
As China’s financial market systems are gradually enriched and improved, the RMB assets become more attractive. Therefore foreign financial institutions have more expectations for participating in the country’s financial market and hope to take part in the Chinese capital, bond and interbank markets.
Domestic financial institutions need to learn from the experience of their foreign counterparts in these markets to make greater progress in such aspects as operational efficiency, risk management, development of new products, and corporate governance.
While bringing a broader market to financial institutions, opening-up can also help these institutions better serve the development of the real economy and meets the needs of people.
Chinese companies relied mainly on indirect financing in the past. However, as more innovative companies are going to grow bigger in the future, there will be an urgent need for the financial system to increase the proportion of direct financing for them.
Opening-up becomes a powerful engine driving such transformation. With the orderly opening of China’s stock and bond markets, more overseas funds can be invested in outstanding Chinese companies, thus facilitating the healthy development of these companies.
According to credible statistics, the stock of China’s bond market reached 112 trillion yuan (about $16.67 trillion) as of the end of August this year, of which 2.8 trillion yuan of bonds were held by international investors.
International investment in the country’s bond market has surged at an average annual rate of nearly 40 percent in the past three years.
As the middle-income group expands and the population ages in China, Chinese people’s demand for financial services in such areas as asset allocation, wealth management, and endowment insurance and medical insurance continue to grow.
Foreign financial institutions with strong sophisticated operation and risk management capabilities in these fields will bring advanced service concepts and management experience, as well as mature products and technologies to the Chinese market, and provide valuable experience for domestic financial institutions.
The opening-up of the financial sector could not be done overnight. It needs supporting reforms. China should strengthen financial infrastructure construction, improve its payment and clearing systems, data system, and trading platforms, and develop more relevant products for trade, so as to create a more convenient and well-regulated environment for investors.
Opening-up does not mean leaving the market entirely to its own devices. China should also pay attention to the prevention of financial risks, strengthen financial regulation, and enhance the monitoring of cross-border capital flows.