In July 2024, the much-anticipated Third Plenary Session of the 20th Central Committee was held in Beijing. The meeting adopted the "Decision of the Central Committee of the Communist Party of China on Further Comprehensively Deepening Reform and Promoting Chinese-style Modernization" (hereinafter referred to as the "Decision"). The "Decision" clarified the guiding ideology, overall goals, and basic principles for further comprehensively deepening reform, emphasizing the need to "coordinate and advance reforms in key areas such as fiscal and financial systems," and made a series of important deployments for deepening the reform of the financial system. On the path to promoting Chinese-style modernization, why is it necessary to deepen the reform of the financial system? What are its significant meanings? What will the focus of deepening reform be? How to build a financial system for science and technology innovation that is adapted to technological innovation? This article intends to answer these questions.
The promotion of Chinese-style modernization urgently requires the deepening of financial system reform. Finance is the lifeblood of the national economy and an important component of the country's core competitiveness. Since the 18th National Congress of the Party, under the centralized and unified leadership of the Central Committee, the comprehensive strength of China's financial industry has been greatly enhanced, with the total assets of the financial industry exceeding 470 trillion yuan. The financial industry has achieved important phased results in supporting the real economy and preventing and resolving financial risks, which has strongly supported the overall development of China's economy and society, and has made an important contribution to building a moderately prosperous society in all respects on schedule and achieving the first centenary goal.
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In November 2023, the Central Financial Work Conference officially proposed the goal of accelerating the construction of a "financial powerhouse" and called for a comprehensive strengthening of financial supervision, improving the financial system, optimizing financial services, preventing and resolving risks, and unswervingly following the path of financial development with Chinese characteristics. It aims to promote high-quality development of China's finance and provide strong support for comprehensively promoting the construction of a powerful country and the great cause of national rejuvenation with Chinese-style modernization. Especially in the current era of unprecedented changes in a century, the international environment is challenging, and a strong and effective financial system is needed to provide strong support for economic development, and deepening reform is undoubtedly an effective means. The "Decision" timely proposed to "deepen the reform of the financial system" and made important deployments for the next stage of financial reform.
Promoting the in-depth development of financial system reform is not only a breakthrough and focus for accelerating the transformation and upgrading of China's financial industry but also an important path to solve the outstanding problems in China's financial field at present. It is an important guarantee for promoting high-quality economic development and is related to the overall situation and foundation of the construction of Chinese-style modernization.
The Central Committee's decision to deepen the reform of the financial system is an important task to accelerate the construction of a scientific and prudent financial regulation system, improve the level of macroeconomic governance, and enhance the consistency of macroeconomic policy orientation. How to improve the level of macroeconomic governance, an important indicator is the effectiveness of financial regulation. Compared with the goals and requirements of Chinese-style modernization and financial powerhouse, the quality and efficiency of China's financial services to the real economy are not high, reflecting that China's financial regulatory effectiveness has not reached the desired level, especially the modern central bank system still needs to be further improved and perfected.
Deepening the reform of the financial system is the driving force and guarantee for strengthening financial supervision. In the process of the rapid development of China's financial industry, the institutional construction of financial supervision has gradually tended to be perfect, but there are still a series of problems: lax supervision, lack of comprehensive and systematic supervision, insufficient authority and deterrent power of supervision; supervision has not been able to achieve full coverage, insufficient penetration, there are gaps and blind spots, and there are still many hidden dangers in the financial field; lack of self-regulation, regulatory coordination, and regulatory legislation lag behind. After years of unremitting efforts, the financial supervision situation has been greatly improved, but it still needs to be further improved and strengthened.
Building a high-quality modern financial system requires deepening the reform of the financial system. At present, China has become the world's largest banking market and the second-largest insurance market. In the global top 1000 banks list released by the British "Banker" magazine in July 2024, a total of 143 Chinese-funded banks were shortlisted. However, objectively speaking, the problem of China's financial market and financial institutions being large but not strong, large but not refined still exists; compared with the world's advanced level, there is also a significant gap in the quality of financial products and services, and the level of innovation activity, which needs to be made up as soon as possible. Therefore, it is urgent to deepen the system and mechanism reform of the financial market, institutions, products, and service system.
The capital market is an important part of China's construction of a high-level socialist market economic system, and its healthy development is of great significance for accelerating the improvement of the modern market system, optimizing resource allocation, promoting economic transformation and upgrading, and forming and developing new quality productive forces. Since the 18th National Congress of the Party, the Central Committee has attached great importance to the development of direct financing and the capital market, made a series of major decisions and deployments, and clearly proposed to form a multi-level capital market system with complete financing functions, solid basic systems, effective market supervision, and effective protection of investors' legitimate rights and interests through deepening reform. However, for a long time, the development of China's capital market has been relatively lagging, the proportion of direct financing is low, the price discovery function has not been fully realized, the market order is not standardized enough, and the investor protection system and mechanism are not perfect enough. It is urgent to comprehensively deepen the reform of the capital market to better play the hub function of the capital market and more strongly support scientific and technological innovation and promote the development of new quality productive forces.
Deepening the reform of the financial system is the only way to promote high-level financial opening. Financial opening is an important part of China's opening to the outside world and is also an internal requirement for establishing and improving a modern financial system and achieving high-quality development. In recent years, China has taken the initiative to promote the opening of the financial industry, significantly relax market access restrictions for the financial service industry, and the internationalization of the renminbi has made steady progress. In the next stage, it is necessary to promote more long-term funds, institutional investors, and overseas investors to enter the domestic market through deepening related system and mechanism reforms, invest in renminbi assets, enrich financial market entities, optimize financial supply, and improve China's financial market financing functions and resource allocation efficiency.The "Decision" not only focuses on the content of deepening financial system reform but also specifically proposes to "build a technology finance system that is compatible with technological innovation." Currently, China's economy is in a period of conversion between old and new drivers and a critical period for the economy to transform towards high-quality development. Faced with global economic changes and external technological competition, developing new quality productive forces and enhancing the overall efficiency of the national innovation system are important ways to achieve high-quality economic development and Chinese-style modernization. To this end, it is particularly important to leverage China's institutional advantages through deepening reforms and innovation, forming a diversified technology finance system guided by the government, led by the market, and participated in by various types of capital, and to increase efforts to promote the development of scientific and technological innovation. The following suggestions are made:
1. Regularly implement the re-lending arrangement for scientific and technological innovation to promote the rapid implementation of this year's re-lending for scientific and technological innovation and technological transformation. It is recommended that the central bank continue to arrange a certain scale of re-lending for scientific and technological innovation in the next few years, support commercial banks to issue a larger scale of relatively low-interest loans, and support a large number of scientific and technological innovation entities. In the first half of 2024, the central bank has newly established structured monetary policy tools such as re-lending for scientific and technological innovation and technological transformation. The next focus of work is to accelerate the docking of re-lending funds with projects. It is suggested that more than 1,600 national-level manufacturing single-champion enterprises, 12,000 national-level specialized and refined "little giant" enterprises, 98,000 provincial-level specialized and refined small and medium-sized enterprises, and 215,000 innovative small and medium-sized enterprises from various places can be prioritized to be included in the re-lending support list and pushed to banking institutions.
2. Better leverage the comprehensive advantages of large state-owned commercial banks. In view of the multifaceted shortcomings of small and medium-sized banks, such as insufficient scale, insufficient comprehensive management capabilities, and weak risk management capabilities, it is recommended to encourage large state-owned banks to establish technology finance departments or independent technology finance subsidiaries, fully leverage the advantages of strong risk resistance, obvious comprehensive and group characteristics of large state-owned banks, and strengthen the financial support of the state-owned financial system for major national scientific and technological tasks and technology-based enterprises.
3. Improve the function of supporting small and medium-sized enterprises in scientific and technological innovation by enhancing the blood-making function of small and medium-sized commercial banks. Small and medium-sized banks represented by city commercial banks and rural commercial banks are the main force in serving local small and medium-sized technology enterprises. In recent years, due to the accelerated narrowing of net interest margins and the decline in bank profit growth, the ability of small and medium-sized banks to provide financing for technology has been limited. To alleviate this contradiction, it is suggested to support small and medium-sized banks to expand the issuance scale of perpetual bonds and secondary capital bonds, enhance the capital strength of financial services for the real economy; the central finance can increase the quota of local special bonds, support local governments to increase the issuance of special capital bonds, and inject capital into city commercial banks and rural commercial banks in a targeted manner to help them accelerate "blood-making" and enhance and stabilize their ability to support local small and medium-sized technology enterprises.
4. Explore the establishment of a technology policy bank. It is suggested to draw on the experience of the European Investment Bank (EIB) and explore the establishment of China's technology policy bank, focusing on supporting enterprises undertaking major national scientific and technological projects, supporting the construction of major national equipment, participating in the action of strengthening and supplementing the manufacturing industry chain, and key technology攻关 projects, matching the financing characteristics of long investment period, large capital demand, and relatively slow returns of related projects.
5. Strengthen the support of multi-level capital markets for technology finance. Make good use of the functions of the Growth Enterprise Board, the Science and Technology Innovation Board, the Beijing Stock Exchange, and regional equity markets, further improve business models such as investment and loan combination, investment and loan guarantee linkage, improve support policies for long-term capital investment in early, small, long-term, and hard technology, and provide full-life-cycle financing support for technology innovation enterprises. Strengthen the precise support of the bond market for the financing of technology innovation enterprises, it is recommended to prioritize supporting national-level manufacturing single-champion enterprises, specialized and refined "little giant" enterprises, and provincial-level specialized and refined small and medium-sized enterprises to issue bonds for financing, and encourage policy institutions and market institutions to provide credit support for private technology-based enterprises to issue science and technology innovation bonds for financing.
6. Establish and improve the technology insurance system. At present, there are about 20 types of technology insurance in China, but most of them are general insurance products targeting specific risks of technology enterprises, mainly concentrated in traditional fields such as property, liability protection, or cost compensation, and have not yet truly built a comprehensive insurance product system covering the entire industry chain of technology enterprise research and development, production, entrepreneurship protection, and talent protection. It is suggested to accelerate the construction of an insurance risk information database, improve the assessment, pricing, and measurement capabilities of insurance institutions for large risks and new types of risks, gradually improve the upstream and downstream ecological environment of technology insurance, and explore the establishment of a comprehensive service platform for technology insurance in technology parks.