Deregulation of financial services set to speed up

China is poised to speed up deregulation of the financial services industry while also strengthening supervision, as evidenced by a series of recent moves by the China Securities Regulatory Commission (CSRC), a finance professor in Shanghai told the Global Times yesterday.

In a meeting with Guangdong Province Communist Party chief Wang Yang and governor Zhu Xiaodan, CSRC Chairman Guo Shuqing voiced his support for pushing forward with financial innovation as a way to support local industrial reform, Guangzhou Daily, a local newspaper reported yesterday.

The province will lead the country in trials of using financial leverage to boost the high-tech industry, advanced manufacturing and modern services, the report said, citing Wang.

"The basis for all the (proposed) financial innovation in China is deregulation, whether it is to loosen controls on the establishment of financial institutions, capital flow, or development of new financial products," said Luo Yuding, vice dean of the College of Business at Shanghai University of Finance and Economics.

"Too much regulation hampers efficiency," Luo noted.

The local government of Shenzhen, Guangdong Province released a plan last week to revitalize its financial services industry, including some bold measures to facilitate cross-border capital flows.

Shenzhen will speed up trials of cross-border yuan-denominated loans from Hong Kong banks, which charge far lower interest rates than those in the mainland, Xinhua News Agency reported.

"Enterprises in Shenzhen and Hong Kong have been lending to each other for some time, but underground. Now the innovation will help legitimize the activities, making them more secure," Luo said.

Wenzhou in Zhejiang Province, the first city to get approval from the State Council to set up a financial reform test zone last month, has announced similar measures, such as allowing an individual to invest up to $200 million a year overseas. The test zone also allows private capital to set up lending institutions, according to the government's plan.

Meanwhile, the CSRC has also beefed up supervision of financial exchanges and Guo Shuqing vowed to clamp down on insider trading.

"This will help keep financial innovations in order," Luo said.

Some have expressed concern that the reforms could lead to higher leverage and excess capital liquidity. But Luo said that as long as the central bank maintains careful control of money supply, the risks could be managed.