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Financial reform in China to boost real economy

Updated: Aug 4,2016 2:24 PM

With continuous efforts to lower the reserve requirement ratio (RRR) and interest rate, the average loan interest rate has been reduced and total loans reached a record high. Even under such circumstances, enterprises still hunger for more loans.

To tackle such a problem and pave a smooth way for the real economy, China has carried out reforms in recent years to build a multilevel, diversified and elastic financial market system.

Private banks to bolster entrepreneurship

The development of private banks and medium-to-small banks is a major part of the financial supply-side reform.

Five pilot private banks are running in good condition so far. As of the end of the first quarter, total assets of the five private banks amounted to 95.94 billion yuan ($14.46 billion).

MYbank, one of the five private banks, is an Internet bank. With the help of big data and Internet technologies, the privately-owned bank issued 23 billion yuan in loans to about 1.7 million small and micro businesses since it was established one year ago.

Transnational loan to lower financing costs

In recent years, loan rates of the Euro, US dollar, and Japanese yen were lower than China’s yuan, which is quite attractive to domestic enterprises.

“Prudent establishment of a management system of foreign loans and capital flow is an important measure to further foreign exchange management reform and promote financial convenience”, Guo Tianyong, a financial professor of the Central University of Finance and Economics said.

Yonyou, a Chinese Internet technology company, got its first loan from Germany last year thanks to the pilot foreign loan project implemented in Beijing. So far, it has received loans of €67.8 million.

Two tracks of financing

In the past, China’s financing structure featured bank loans, an indirect way of financing which was costly and inflexible.

As the economy enters the New Normal and mass entrepreneurship and innovation is underway, efforts should be made to develop direct financing to share the risks of traditional banks, according to Zhao Xijun, a financial professor of Renmin University of China.

The two tracks of direct and indirect financing are significant to financial reform and the development of enterprises.

Statistics show that direct financing in the first quarter reached 1.52 trillion yuan, with 228 percent year-on-year growth.

The expansion of direct financing is part of the efforts to optimize financial structure. This will improve China’s direct financing market and provide multiple financing channels for different kinds of enterprises, according to Zeng Gang, a financial expert from the Chinese Academy of Social Sciences.