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[NPC & CPPCC] Huang Yiping: Two Important Factors in China’s Financial Reform

MAR . 13 2017
Peking University, Mar.11, 2017: At the annual NPC (the National People’s Congress) and CPPCC (Chinese People’s Political Consultative Conference), Huang Yiping, Professor of Economics at PKU, recognized the market mechanism and the supervision mechanism as two important factors in China’s financial reform. He illustrated his statement while answering questions put forward by the reporter of People’s Daily Overseas Edition.
The Market Mechanism: Indispensable in Distributing Financial Resources
In this part, Huang emphasized the decisive role of the market mechanism in distributing financial resources and took the “zombie companies” as an example to back up his opinion.
Reporter: In order to carry out the thirteenth five-year plan, China will further develop the supply-side structural reform. What is the key factor in China’s financial reform?
Huang: Eleven requirements of financial reform were put forward in the 18th Central Committee of the Communist Party of China (CPC). How the market mechanism functions in distributing financial resources is an important part of these eleven requirements. Under the market mechanism, the monetary policy will be transformed from policy-oriented to price-oriented, and theexchange and interest rates will become market-oriented in the price system.
Reporter: Why is it difficult to remove “zombie companies”? How can we push through the removal of these companies?
Huang: Although there are many specific problems, such as employment and social stability, involved in removing “zombie companies”, the primary cause of the existence of these companies is the failure of the market mechanism. Only when the market mechanism functions well can industrial upgrading become possible.
The Supervision Mechanism: Promoting the Reform
In the second part of the interview, Huang illustrated the necessity and significance of the reform of the supervision mechanism. As a special part of the finance sector, the Internet finance was discussed to illustrate the importance of building an integral supervision system.
Reporter: How will the reform of the supervision mechanism be promoted this year? How will a regulatory framework that is suitable to financial innovation and beneficial to the prevention of financial crisis be built? How can systematic risks be controlled?
Huang: There are two aspects of the supervision mechanism reform. One is the reconstruction of the coordination mechanism of financial supervision policies. Lacking policycoordination will lead to risks in the financial system. Mergingor separating institutions may not solve this problem thoroughly. Establishing aBoard of Financial Stability may receive a better result. The other aspect is the construction of a macroscopic supervision and regulation system. Because of the existence of risks in the system, building such a system is necessary and urgent.
Reporter: How can supervision of the Internet finance be enhanced? How can the balance between supervision and innovation be achieved?
Huang: The Internet finance has advanced technology, enjoys great market, and possesses infinite potential, but risks do exist at the same time. I think we should integrate supervision of the Internet finance into the supervision framework. Using a unique system to supervise the Internet finance will cause arbitrage behavior and risks.
Written by: Hu Rong
Edited by: Xu Liangdi
Source: PKU News (in Chinese)