The mainland's financial system needed to play a more active role in helping its real economy become more resilient to external shocks as the world grew economically interdependent, a top International Monetary Fund official said yesterday.
Speaking at the Asian Financial Forum in Hong Kong, Zhu Min, a deputy managing director of the IMF, said financial reform on the mainland must be linked to the real economy, including the manufacturing sector, public services associated with urbanisation, as well as the rapidly developing service industries.
Zhu said overreliance on trading within the global banking sector and the "too big to fail" financial system were the lessons to be learned from the global financial crisis in 2008, when excessive leverage forced Lehman Brothers into bankruptcy.
"Trading accounts for 98 per cent of the US$5 trillion daily turnover of global foreign exchange," said Zhu, suggesting that the market was driven by investors and speculators rather than companies exchanging currency for commercial purposes.
Against the backdrop of uncertainty abroad, he said the mainland's capital-intensive manufacturing sector lacked supplies of raw materials in its upstream and branded companies capable of selling its products downstream.
However, Zhu, who projected the mainland's economic output would grow 8.2 per cent this year, said "China will stay as the top manufacturing country by output" because manufacturing elsewhere in Asia "lacks relevant financing vehicles".
Zhu, a former deputy governor of the People's Bank of China before he joined the IMF in 2010, said financial reform would make it easier for mainland consumers to save and borrow, boosting domestic consumption.
Apart from supportive financial measures for large state-owned enterprises, he stressed that Beijing should create preferential policies to support small private businesses as a way to create jobs and increase wages.
Zhu emphasised the role small and medium-sized enterprises could play in the development of the upstream and downstream parts of the manufacturing industry.
He also urged greater participation in the bond market.
Zhu said financial institutions should promote investments in public transport, health care and education as hundreds of millions of people moved to the cities in search of higher paying jobs.
According to consulting firm McKinsey, China's urban population will hit one billion by 2030, gaining a further 350 million, more than the entire population of the United States today. Urban dwellers made up about half of China's overall population of 1.35 billion in 2011, National Bureau of Statistics data shows.
In a separate forum, Zhu said the situation in the euro zone had been improving since last year but there was a risk of "over-optimism about the global outlook".