Tuesday, May 29, 2012

Chair of China Securities Regulatory Commission Details Efforts to Open Up Financial Markets

How to combine safety and convenience as well as stability and flexibility has become the major theoretical and practical issue faced by the reform and opening up of China’s securities and capital markets, said Guo Shuqing, Chairman of the China Securities Regulatory Commission. In recent remarks at the IOSCO Annual Conference, he noted that China has embarked on a unique and multi-pronged approach to opening up its capital markets involving the reform of state-owned enterprises; special regimes such as the Hong Kong Special Administrative Region playing the double role of bridge and barrier for capital inflow and outflow; and opening securities markets to overseas participants in a gradual and indirect manner. A signal goal of the reformed regulatory regime is to attract foreign direct investment.

According to Chairman Guo, a number of thoughtful arrangements were adopted in furtherance of the opening up, including prioritizing “greenfield investments”, guiding the financial industry to serve the real economy, effectively establishing the firewall system, adopting a gradual approach by starting the opening up from foreign-related economic sectors. In his view, these arrangements have maintained the sound and steady development of China’s economy and finance in general. However, he acknowledged the existence of some drawbacks, such as the imbalanced development of capital and financial market systems and the yet-to-be-improved market operation efficiency and the effectiveness of financial regulation.

The Chairman also emphasized that there is no absolute and one-size-fits-all standard for capital accounts convertibility. Therefore, countries with different development levels must take their respective path of opening up and particular circumstances into consideration. He pointed out that the concept of  fully free convertibility does not exist in reality; and should be considered in a prudent manner. In any country, he reasoned, capital account convertibility does not translate into total abandonment of regulation and control.