New | China 'to speed up financial reforms and lower corporate funding costs'
China will seek a freely convertible yuan in its push to open up financial markets, and a lower leverage ratio to counter economic risks in the coming five years.
In a document unveiled yesterday outlining major targets for the country's 13th five-year plan, the Communist Party vowed to speed up financial reforms and lower corporate funding costs.
The plan will open the financial sector further, gradually promote the yuan's inclusion in the basket of Special Drawing Rights (SDR) currencies, and push for it to become a convertible and freely-used currency.
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The plan also calls for revamping the stock and bond markets, raising the proportion of direct financing, and preventing systemic and regional risk.
"It appears China's financial reform is accelerating with the endorsement from the top," said Hong Hao, an economist at the Bank of Communications.
Financial turmoil this summer - a stock market meltdown, the one-off devaluation of the yuan, and government intervention to stabilise stock prices and exchange rates - and the faltering economy raised concerns about Beijing's reluctance to promote market-based reforms .
But Beijing made its commitment clear when Premier Li Keqiang reiterated that reforms would continue along with the yuan's internationalisation. "Financial reforms are being pushed relatively quickly despite concerns about risks and we have seen the government's confidence in a more open and market-oriented economy," said Wen Bin, an economist at China Minsheng Bank.
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The People's Bank of China lifted the deposit rate ceiling last month, issued yuan bonds in London, and further opened the interbank yuan market to overseas monetary authorities.
A stock-connect programme linking the Shanghai and London stock exchanges, and a trial of convertible yuan under the capital account in the Shanghai Free Trade Zone are among a slew of measures Beijing is considering.
Economists expected the first years of the 13th five-year plan would be occupied by efforts to eliminate the effects of stimulus policies, including retiring excess capacity and lowering corporate and government debt.
"Any breakdown of corporate funding would start a chain reaction. If it leads to massive bankruptcy, then it will trigger systemic and regional crisis," said Wu Jinglian, an economist at the State Council's Development Research Centre.
Chen Long, an economist at the Bank of Dongguan, said nearly half of total social financing - a wider measure of liquidity in the economy including traditional bank loans, trust loans and banker's acceptances - was used to pay interest on existing debt.
