Improving the allocation efficiency of financial resources
(Wu Xiaoling, Dean of Tsinghua University PBC School of Finance and advisory council member of SIFL Institute, delivered a keynote speech in 2015 Tsinghua PBCSF Global Finance Forum. The post is excerpted from the speech.)
As the reform and opening up has helped our residents accumulate wealth and also great amount of their savings have provided sources for investment, it appears a current challenge for economic new normal concerning how to improve investment efficiency and the quality of economic growth, which is not only a significant measure for responding to challenges, but also an important task in financial system reform. As for this regard, the following aspects are my suggestions for future efforts:
First of all, while bettering macro control, more efforts should be paid in energizing market investment and financing activities. Considering the status quo that the economic leverage rate has been relatively high in our country, bank credits should not be added any more. From 1949 to 2008, the overall credits from the banking system in China were 20 trillion yuan. However, 50 trillion was the situation for the period of 2009 to 2014.
In my opinion, the bottleneck of the current situation is not a lack of money for China but the need to invest such money by means of legal and effective methods into real economies. Therefore, the only way left for China to get rid of the current economic mire is to control the currency and energize the finance.
Second, it is necessary to strengthen the financial constraints on the market subject so that the efficiency and risk condition can be reflected by capital price.
The market main body of financial soft constraints would occupy too many financial resources, thus resulting in the squeezing out of other market main body. Currently, it is easier for local financing platform and large-scale SOEs to obtain capitals. Yet it is much more difficult for small-and-medium-size enterprises to do so. Some zombie companies that should exit the market have not done so. On the contrary, they have occupied many resources.
Clarifying risk responsibility and doing well in social guarantee should be ensured. orderly breaking of “guaranteed return” is to let the market play its decisive role, which is a crucially important link in improving market efficiency.
Third, the autonomous rights of wealth by residents themselves shall be respected and the proportion of direct financing shall be uplifted. Financial activities manifest the utilization of their property rights, which center round information revelation. Therefore, it constitutes the basic of the healthy development of direct financing to crack severely down on false information, information cheating, to protect market order and construct multi-tier capital market that is seamlessly connected.
Right now, the focus should be to develop OTC market, especially equity markets in the new third board (an over-the-counter market for growth enterprises) and counter market for brokers. Wealth management market will be an important constituent of future direct financing. Currently, the nature of all sorts of wealth management products is money trust. Only by clarifying lawful relationship can the market order of shouldering responsibility by oneself be constructed, which is the very base of governing the market by law.
Besides, stick to the principle of non-repetitive and fair taxing and encourage collective investment scheme and crowdfunding development represented by VC/PE so that the financing channels for business startup and innovation can be created.
The development of such IT as the Internet, big date, cloud computing and mobile payment have created technology conditions for the financial industry to reduce financing costs. Encouraging innovation with an inclusive attitude and participating in innovation in the spirit of being responsible for oneself is the only way that China’s financial industry can increase the allocation efficiency in the information age.
Fourth, strengthen the infrastructure construction of financial market and effectively guard against and resolve financial risks.
Only after constructing macro-prudential management frame based on the concentrated-and-shared information, and building trans-market mechanism of analysis and monitoring can financial risks be effectively guarded and resolved and can regional and systematic baseline of financial risks be prevented. The successful transformation for China’s economy and the promotion of China’s economic innovation can only be achieved by improving the allocation efficiency of financial resources.
Published on National Business Daily
