Year 2020 to See Wider Development Opportunities in Financial Market
Financial market opening-up will probably increase a country’s GDP by one percentage point. The intrinsic logic lies in that the financial market opening-up is accompanied with risk sharing and promotion which can reduce financing costs and increase investment inputs. Furthermore, for economic growth, the most important part is technological innovation. According to statistic analysis, with the financial market opening-up, many countries see remarkable increases in innovation.
It is obvious to all that the financial opening-up has sped up in the past year. At the 24th China Capital Market Forum, in-depth discussions were carried out on how to open up the markets of stocks, bonds, foreign exchanges and the like, forestall the impacts of cross-border capital flows and maintain financial stability.
Stocks, Bonds and RMB Internationalization
The stock market needs to be further opened up at the basic institutional level. More efforts need to be made to arrange the channels for cross-border capital flow, synchronize the market-oriented reforms related to interest and exchange rates, further refine risk management tools in the stock market, and monitor and regulate cross-border capital flows.
The financial opening-up will promote healthy competition in finance. Through financial opening-up, domestic and overseas financial institutions and practitioners compete with each other globally, which promote the financial industry to advance overall and better serve customers and the entire economy, thus improving the aggregate efficiency of the financial market. The financial opening-up will push ahead with the accelerated transformation of Chinese-funded financial institutions and the perfection of the market mechanism.
As for China’s bond market opening-up, in recent years, it has been closely associated with RMB internationalization. They are two sides of the same coin, and many measures for the bond market opening up are driven by RMB internationalization. For the future overall opening-up of the bond market, more actions need to be taken to refine infrastructure, bond instruments and trading mechanisms, as well as supporting arrangements for two-way capital transactions and flows, and there is still much room for the bond market opening up.
As for financial institutions, foreign-funded financial institutions in China should play a more important role. In the introduction of foreign-funded financial institutions, we may need to balance their short-term and long-term objectives. In the long run, we need to pay more attention to the impact of foreign-funded financial institutions’ entry on the market mechanism.
Similarly, RMB internationalization can be adopted as a new approach for the opening up of the entire financial market, which can conduce to the improvement of the overall financial market. Moreover, because the degree of RMB internationalization is closely related to the financial market development, we need further promote the entire financial supply-side reform to form a better external environment for RMB internationalization and to build a relatively reasonable financial market as well as a relatively rational financial institution system.
Opening-up and Maintaining Financial Stability
The current opening-up process is greatly improving the stock market or the capital market. Globally, about USD19 trillion of bonds are held by foreign investors. Due to the high yield rates of Chinese bonds, foreign capital inflows to China will continue this year and increase in the coming years.
Moreover, from the perspective of yields, the current spread between the yields of RMB-denominated bonds and those of US Treasuries approaches 100 basis points, directly stimulating more foreign capital inflows. Such capital inflows financially support the expansion of the domestic RMB-denominated bond market. Year 2020 is expected to see an increase of RMB 700 billion to RMB 1 trillion in capital inflows.
In this process, suggestions regarding how to forestall the risk of impacts from cross-border capital flows are made from three aspects: First, adhering to the coordinated promotion in expanding opening-up and deepening reforms. The financial opening-up is very much different from the trade opening-up, since the capital market is characterized as procyclical with rapid changes. While working on expanding opening-up, we should also lay out deepening reforms.
Second, further refining the financial macro-control mechanism and building a modern central bank system. After the capital market opening-up, especially the bond market opening up, foreign investors pay unprecedentedly higher attention to China’s monetary policy.
Third, continuing to forestall and defuse major financial risks. For the success in all opening-up, including the market-oriented transformation of exchange rates, the important sign lies in the healthy domestic financial system.
The most important thing for China’s capital market opening-up is policy continuity and stability. In the whole financial opening-up process, there should be more systematic views and coordination and cooperation in opening up different types of markets. For the future financial opening-up, comprehensive measures should be better implemented in building the financial market, constructing infrastructure, refining the legal system, and the cultivating and developing financial institutions to further promote the open and steady development of the entire financial market.
Grasping Opportunities to Widen Financial Market
The financial opening-up is conducive to enhancing economic growth potential. In the future, the Chinese market will see more capital inflows which may be accompanied with capital outflows. These capital flows will increase market volatility and bring brand new opportunities for the bond market. In the meantime, the openness and improvement in various policies also bring more opportunities and challenges for financial institutions. How to seize these opportunities to strengthen the company is also an important development direction that SendKing explores and researches.
Both the accelerated international process and the greatly expanded domestic and overseas layouts are the powerful guarantees for SendKing’s development. While firmly focusing on equity investment, we will usher in a more comprehensive financial development system with richer financial innovation products. In 2020, SendKing will deepen its application in domestic and overseas securities, insurance, banking financing, asset management, family trust, asset allocation and other products to create comprehensive professional services; SendKing will strive to bring clients more professional and efficient financial experience to create wealth together with clients.
The Curriculum Vitae of Director of the International Finance Department
Florian Chen, born in Zhuzhou, Hunan Province in February 1982, graduated from Blaise Pascal University in France with a master's degree in management, currently working at Hunan Send King Financial Service Co., Ltd. (“SEND KING” for short) as the director of International Finance Department.