Xiao Gang: speeding up the reform of financial market elements and abolishing unnecessary administrative control

category:Finance
 Xiao Gang: speeding up the reform of financial market elements and abolishing unnecessary administrative control


Building global RMB financial asset allocation center

Thank you, moderator. Today I am honored to have the opportunity to participate in the international monetary forum of Renmin University of China. According to the theme of the forum, I would like to share with you the issue of building a global RMB financial asset allocation center.

As we all know, the global epidemic spread in the first half of this year, which caused a large fluctuation in the global financial market. The prices of stocks, bonds, gold, exchange rate, futures, crude oil and other major types of assets fluctuated. In particular, the U.S. stock market once failed four times in March, triggering the stock markets of other 11 countries to fuse.

Judging from the global stock market and bond market in the first half of the year, we can divide the global assets and major categories of assets into two categories. One is the risk averse assets, such as treasury bonds and gold, and the other is the risk assets such as stocks. Judging from the situation in the first half of the year, the performance of hedge assets was relatively good. Gold rose the most in the first half of the year, up 40%, followed by bonds.

In terms of quarter, the first quarter and the second quarter showed the opposite trend. The first quarter was the most serious period of the epidemic, so the safe haven assets rose better. That is to say, the assets such as gold and national debt rose more, while stocks and crude oil fell a lot in the first quarter. From the perspective of the second quarter, the epidemic situation in different countries is different, some have eased, but some are still aggravating. Generally speaking, the prices of hedge assets are falling in the second quarter, while the prices of risk assets are rising. For example, stocks began to rebound in the second quarter, and crude oil also rebounded significantly in the second quarter. From the second quarter to now, gold and bonds are in shock adjustment stage.

In spite of the turbulence in the international financial market, compared with the international market, Chinas financial market shows relatively stable operation situation and strong resilience. On the whole, Chinas stock market has achieved a relatively rapid growth. In particular, the number of IPOs in Shanghai and Shenzhen should exceed that of NASDAQ and NYSE. From the point of view of the bond market, the development of our national debt market is faster, and the development of corporate credit bonds is also faster. Therefore, we should say that in the first half of the year, we issued more corporate credit bonds. From the perspective of RMB exchange rate, the supply and demand of foreign exchange market has maintained a basic balance. Foreign exchange reserves have also increased, the RMB exchange rate is more flexible, and the exchange rate has maintained a two-way fluctuation trend, which is stable on the whole.

Chinas financial market shows a relatively stable situation and strong toughness, but also has a strong vitality. Foreign investors are more optimistic about RMB financial assets, that is to say, the global attractiveness of our financial assets has increased significantly. Why do foreign investors favor RMB financial assets? I would like to share with you some information and reasons.

According to relevant statistics, by the end of 2019, the financial assets of RMB allocated by foreign institutions have reached RMB 6.4 trillion, with an average annual growth rate of 20%. As far as the stock market is concerned, as of July 10 this year, the net foreign purchases of a shares through Shanghai and Shenzhen Hong Kong stock connect have exceeded 170 billion yuan.

By the end of June this year, the balance of Chinas A-share shares held by foreign investors had reached 368.4 billion US dollars, an increase of 13% over the previous year, achieving a double-digit growth rate. The balance of Chinas bonds held by foreign investors also reached US $369.1 billion, an increase of 10% over the previous year, and the amount of bonds held was three times that of 2016. By the end of June this year, the custody volume of bonds of overseas institutions had reached 2.19 trillion yuan, an increase of 82.9 billion yuan over the end of May, a substantial increase of 33% over the same period last year. This is the month on month data of May and June.

In addition to RMB financial assets attracting foreign investment, foreign direct investment has also achieved good results. In the first half of this year, Chinas utilization of foreign capital reached 472.2 billion yuan, especially in the second quarter, which increased by 8.4%. From a global perspective, direct investment is also shrinking. It is not easy for us to achieve an 8.4% increase in foreign investment in the second quarter.

All these show that foreign capital is very interested in the Chinese market, and China is becoming more and more attractive. Why are foreign investors so interested in RMB assets? My analysis mainly has the following reasons.

First, China is the mainstay of stabilizing the global economy. We have just released Chinas economic data for the first half of this year. Chinas economy grew by 3.2% in the second quarter. The industrial added value and the profits of Industrial Enterprises above the designated size have turned from negative to positive. The PMI of our manufacturing industry has been stable above the boom and bust line for four consecutive months, and the production index of service industry has also changed from decline to rise.

The overall investment growth still has a decline, but the decline continues to narrow, and consumption is accelerating. Therefore, this fully reflects the inherent resilience and vitality of Chinas economy, which should be said to have injected strong confidence and impetus into the global economic recovery. Therefore, such a recovery of economic growth is conducive to enhancing foreign investors confidence in RMB assets, especially attracting long-term capital inflows.

In terms of investment in fixed income products, although we continue to lower interest rates in response to the impact of the epidemic, Chinas interest rate level is still relatively appropriate. On the one hand, we need to reduce the level of interest rates to deal with the impact of the epidemic on enterprises and reduce the burden of enterprises, but at the same time, we should also see that Chinas interest rate marketization is also speeding up. Therefore, after the interest rate marketization, the control of interest rate has been relaxed. Therefore, these two factors make Chinas interest rate keep at a relatively reasonable level. From the perspective of Chinas long-term supply and demand balance, our country has neither inflation pressure nor deflation worries. Therefore, maintaining such interest rate level is very conducive to fixed income investment.

From the perspective of equity investment, Chinas assets also have long-term investment value, especially the structural value. Many listed companies in Europe and the United States are suffering from the impact of the epidemic, and their profits are also decreasing, so their enterprises have suspended stock repurchase. In the past decade, many listed companies in Europe and the United States have used a lot of cash to buy back shares, which is good for stock price rise, investment and return. However, after the outbreak of the epidemic, many listed companies in Europe and the United States stopped stock repurchase. Some listed companies also stopped paying dividends, which caused great pressure on the return of overseas funds. In addition, after the epidemic, European and American central banks implemented quantitative easing policy without bottom line, and generally implemented zero interest rate and negative interest rate, which greatly reduced the yield of financial assets.

In this context, the security, profitability and robustness of RMB assets are highlighted. For example, Morgan Stanley published a report in the first half of this year, listing China as an asset haven. From the analysis of msciwork, a global emerging market stock index, there are probably three characteristics of companies incorporated into the msciwork index. The first feature is that its market value ranges from $5 billion to $10 billion. Second, it is a new but stable industry. For example, in the pharmaceutical industry, biomedicine itself is an emerging industry, but it is not completely without product sales and mature product sales. Many of its products are relatively stable, so it is an emerging industry and a relatively stable industry. This is the second standard. Third, the compound growth rate of its operating income is relatively fast, so taking these three factors into account, MSCI global stock index forms a stock index, which is followed by many institutional investors around the world. In China, 52% of companies meet these three conditions, while only 18% in the United States. So we can see that Chinas assets are attractive.

The third reason is that Chinas capital market has become one of the largest markets in the world, with a total of 160 trillion yuan in the stock market and bond market, ranking second in the world. Our mutual fund market also ranks fifth in the world. If we add public funds, trust funds and asset management products, we will have a certain nature of public funds. If we add these three together, we will probably be in the third place in the global fund market. Therefore, such a large market has a high degree of activity and resilience. Especially, Chinas stocks and bonds have been included in several mainstream international indexes. Once included in the international indexes, overseas long-term funds will follow the allocation, so it also attracts more long-term funds to allocate RMB assets.

The fourth reason is that in recent years, various measures and effects of expanding financial opening up have emerged. Since the beginning of this year, we have announced and implemented a series of financial opening-up measures, such as the cancellation of QF and MQF investment quota, such as the abolition of the restrictions on the proportion of foreign shares held by financial institutions, and so on. In this way, the convenience of asset allocation for foreign investors to participate in Chinas financial market has been greatly improved.

Based on the above reasons, I feel that Chinas financial assets have greatly enhanced foreign-funded enterprises. It is of great significance for Chinas economy and financial operation to become the global financial asset allocation center.

Second, it is conducive to deepening the valuation and pricing of Chinas financial marketization, forcing domestic financial institutions to improve product quality and service standards, creating a more open and transparent market environment for domestic and foreign investors, and providing more diversified and multi-level financial products and services. At the same time, further standardize and develop Chinas asset management industry.

Third, it is conducive to Chinas balance of payments. As the trade surplus may decrease in the future, we need to gradually expand the foreign exchange inflow under the capital account. Strengthening the convertibility of the financial market and allowing more foreign capital to enter Chinas financial market to allocate assets is conducive to our overall balance of payments.

Fourth, it is conducive to enhance Chinas voice and rule-making power in global governance, accelerate the development of modern financial services and improve the international competitiveness of financial institutions. It can also boost the construction of Shanghai international financial center and improve the level of RMB internationalization.

Of course, building a global financial asset allocation center is a long-term systematic project, which can not be achieved overnight. It can not only bring us huge benefits, but also has risks and costs. Therefore, to build a RMB asset allocation center, we should take a comprehensive view. In my opinion, in order to build a global RMB asset allocation center, we have the following suggestions:

The first is to speed up the reform of financial market elements, adhere to the direction of marketization, legalization and internationalization, cancel unnecessary administrative control, and let the market play a decisive role in the allocation of resources. We will accelerate the reform of basic systems such as the withdrawal of securities issuance and trading. We will continue to expand the proportion of financial instruments such as foreign exchange financing, bond market and peoples life, and further expand the depth of financial products and investment services.

The third is to promote RMB exchange rate reform and capital account convertibility in an orderly manner. Timely expand the floating range of exchange rate and improve the formation mechanism of RMB exchange rate.

Fourth, it is necessary to strengthen the construction of regulatory capacity to prevent input risks. The opening of financial market is also a double-edged sword. On the one hand, it brings great benefits to the economic and financial development of our country, and at the same time, it may also bring some risks and adjustments. At present, the market opening degree of our country is still not too high. Although our stock market has attracted a lot of foreign capital, on the whole, the proportion of foreign capital in the stock market is less than 5%, and that in the bond market is less than 4%. Of course, the proportion of RMBs reserve assets in the world is less than 3%, and that of the whole banking industry in Chinas banking industry is less than 2%. Therefore, there is still a lot of room for opening up, and we should further promote the opening up.

At the same time, we should see that foreign capital comes in. Part of it is long-term capital, and part of it is short-term capital. We call it hot money. It comes for short-term speculation. Some foreign investors also borrow money to speculate in stocks with leverage. As we all know, the US dollar, euro and Japanese yen are all zero interest rates and low interest rates. Borrowing money is very cheap. Therefore, the foreign exchange funds borrowed are converted into RMB to enter Chinas capital market. This short-term capital will come in and out quickly, bringing greater volatility to our capital market.

Statistical data also show that in recent years, due to Chinas continuous opening up, the linkage between A-share and the main overseas stock markets has been significantly improved. At the same time, foreign capital brings us other new problems, such as the pricing power of foreign capital on our core financial assets. Core financial assets, generally speaking, are in a leading position. Their market value is relatively large and their return period is relatively long, even related to the international peoples livelihood and economic security. When foreign capital enters the stock market to buy our listed companies, the maximum proportion should not exceed 30%. We have this restriction. Then, with the entry of foreign hot money, the enthusiasm is getting higher and higher, which also brings us new problems. Foreign capital is likely to require it to break through the 30% limit. Some foreign investors have also proposed that they will also participate in our fixed increase market, so there will be new situations in the aspects of company merger and acquisition in the future. Foreign investors are now very interested in Chinas national debt market, and their influence on the price of short - and medium-term treasury bonds in one to five years is also increasing. These problems are the inevitable problems and challenges to become the global asset allocation center after the opening of capital market. So we also need to do research. If we want to build a global financial asset allocation center of RMB, it will inevitably cause suspicion, misunderstanding and even suppression in some countries. Therefore, in this regard, we should also conduct overall research, take effective measures, do a good job in international coordination, and seek opportunities for cooperation in the struggle. I will share these with you. If you are not right, please criticize and correct me. Thank you. This article is from Wang Xiaowu, editor in charge of economic report in the 21st century_ NF

Statistical data also show that in recent years, due to Chinas continuous opening up, the linkage between A-share and the main overseas stock markets has been significantly improved. At the same time, foreign capital brings us other new problems, such as the pricing power of foreign capital on our core financial assets. Core financial assets, generally speaking, are in a leading position. Their market value is relatively large and their return period is relatively long, even related to the international peoples livelihood and economic security. When foreign capital enters the stock market to buy our listed companies, the maximum proportion should not exceed 30%. We have this restriction. Then, with the entry of foreign hot money, the enthusiasm is getting higher and higher, which also brings us new problems. Foreign capital is likely to require it to break through the 30% limit. Some foreign investors have also proposed that they will also participate in our fixed increase market, so there will be new situations in the aspects of company merger and acquisition in the future.

Foreign investors are now very interested in Chinas national debt market, and their influence on the price of short - and medium-term treasury bonds in one to five years is also increasing. These problems are the inevitable problems and challenges to become the global asset allocation center after the opening of capital market. So we also need to do research. If we want to build a global financial asset allocation center of RMB, it will inevitably cause suspicion, misunderstanding and even suppression in some countries. Therefore, in this regard, we should also conduct overall research, take effective measures, do a good job in international coordination, and seek opportunities for cooperation in the struggle.