The China Finance 40 Forum (CF40) and the government of Yichun of northeastern Heilongjiang province jointly held the 3rd CF40-Yichun forum on August 10. This year's Forum focused on two of the most significant issues for China's financial and economic development in years to come – opening-up of China's financial sector and the development of financial technology (Fintech).
The forum started with an opening remark by Wang Haiming, CF40 Secretary-General, followed by welcoming notes from Han Ku, mayor of Yichun, and Wang Wentao, Governor of Heilongjiang province.
During the one-day forum, speakers from China's political, academia and financial community discussed the two major topics as well as other key issues concerning China's economy in near- and long-term, such as the ongoing China-US trade friction.
Commenting on the Trump administration's recent labeling of China as a "currency manipulator", Chen Yuan, chairman of CF40 Executive Council and vice chairman of the 12th National Committee of the Chinese People's Political Consultative Conference (CPPCC), said the exchange rate dispute "is just a beginning of a currency war" which could trigger an unprecedented level of influence in terms of its depth and width, and neither the US nor China would benefit from it.
Zhou Xiaochuan, former Governor of the People's Bank of China (PBC), said the trade friction between the US and China is a source of distortion in the global markets, which could cause misallocation of resources in the long run. He called on countries to promote fair competition in order to cope with this challenge and urged China to speed up the process of RMB internationalization.
Huang Yiping, chairman of CF40 Academic Committee and deputy dean of National School of Development at the Peking University, questioned the legitimacy of labeling China as a currency manipulator and argued that the RMB exchange rate has become increasingly flexible and its value is grounded in economic fundamentals. He also suggested that China, which is undergoing unsmooth trade relationship with the US, prepare for the worst while preventing the conflict from evolving into a financial war, continue its efforts toward a clean floating exchange rate regime, and focus on its own work in promoting reform and opening-up.
Zhu Jun, CF40 member and Director-General of the International Department at PBC, refuted the labeling, saying it is against facts and violates economic common sense and consensus of the international community. She also calmed market concern over the recent volatility of yuan's value which she said had been a normal reaction to the escalating China-US trade tension.
Speaking on China’s economic growth and development, Yu Yongding, CF40 advisor and academician of the Chinese Academy of Social Sciences, said the biggest challenge to China’s economy now is the continuous decline of economic growth, which he believes is expected to see further slowdown in the near future. He urged policymakers to take actions to avoid a long-lasting economic slowdown, adopt active fiscal measures while leaving room for monetary policy in order to sustain economic growth.
Shang Fulin, head of the economic committee of the 13th National Committee of the CPPCC, said China must stick to the national strategy of expanding the openness of the financial sector, as financial opening can provide powerful support for the healthy and sustainable development of Chinese economy.
Shang was echoed by Tu Guangshao, member of CF40 Executive Council and former president of China Investment Corporation, who mentioned the necessity for China to further open up the financial industry by stressing its linkage with the development of direct financing in China. According to Tu, one weakness that has constrained the development of China’s direct financing is the underdevelopment of auxiliary systems and services. To deal with this problem, China needs to further open its financial sector so as to improve the supply of related services.
Zhang Chenghui, CF40 invited member and former Director of Institute of Finance at the Development Research Center of the State Council, applauded the new round of financial opening announced by PBC governor Yi Gang in 2018 as the “second round of opening-up with institutional and systematic significance” following the first round in 2001 when China joined the World Trade Organization.
China can benefit from opening its financial sector by getting the efficiency of the entire financial market improved and its integration into the global financial system further enhanced, noted Sun Mingchun, CF40 member, and Chairman and CIO of Deepwater Capital. But he warned against potential negative “spillover effects” of China’s financial opening on the global financial and monetary system, such as possible shock on the current dominant position of the US dollar.
Coming at a time when Facebook’s new digital currency Libra captured worldwide attention and triggered heated discussions over the role of central bank digital currency (CBDC) the forum also brought together senior Chinese regulatory officials, researchers as well as market practitioners whose work is closely associated with the future development of Fintech in China.
Sun Tianqi, CF40 invited member and Chief Accountant of the State Administration of Foreign Exchange, said that China should regard Libra as a foreign currency and incorporate it into the foreign exchange management framework; otherwise, it would be dangerous to accept the currency as a payment option in China.
He also added that Libra could be a new stimulus for China’s reform and opening-up, as when the liberalization of the capital account, a free floating exchange rate as well as the full convertibility of RMB are eventually realized, China would be more confident to open its markets to global digital currencies like Libra.
Mu Changchun, CF40 invited member and Deputy Director-General of the Payment and Settlement Department at PBC, revealed PBC’s latest move in developing CBDC which will employ a two-tier operational structure, in which PBC is the upper level while commercial banks are the second level. According to him, this operation system will not change the debtor-creditor relationship of the currency in circulation, and in order to ensure that central bank does not overissue digital currency, commercial institutions need to pay the central bank full and 100% reserve.
In another speech, Zhong Wei, CF40 member and Director of the Finance Research Center at Beijing Normal University, elaborated that a digital monetary system in the future would be a three-tier structure, with the digital fiat currency at the base, a digital financial account system in the middle, and a digital identification system at the top.
Xiao Gang, CF40 non-resident senior fellow and former Chairman of China Securities Regulatory Commission, called for the integration of artificial intelligence technology and financial industry in improving the efficiency and reducing costs for financial institutions, increasing the flexibility of financial products and services, as well as enhancing the ability of risk prevention.
Commenting on the prospect of Fintech industry in China, Huang Qifan, CF40 advisor and vice president of the China Centre for International Economic Exchanges, noted that neither TechFin nor FinTech overthrows the fundamental principles of traditional finance and financial security, and China should not only utilize the digital platform to its utmost, but also stick to the principles and ideology of modern finance.
The forum also featured a section in which Zhang Bin, CF40 senior fellow, introduced a latest research report titled “Boundary of Debt” which was conducted by members of CF40 Young Economists Program. The report assessed the situation of China’s local government debt and shadow banking, reviewed global experience in preventing debt crisis, and proposed ways to address the debt issue.
