Dissecting China's financial work priorities in 2024 government work report

Editor's note: Liu Xiaochun is the vice president of the Shanghai Finance Institute. The article reflects the author's opinion and not necessarily the views of CGTN. It has been translated from Chinese and edited for brevity and clarity.

China's economic work this year is generally characterized by "pursuing progress while ensuring stability, promoting such through progress, and establishing the new before abolishing the old." Therefore, the requirements for financial work in the 2024 government work report are also rooted in "stability." 

The report says, "A prudent monetary policy should be flexible, appropriate, precise and effective." Monetary policy changes with macroeconomic shifts, so a simplistic easing or tightening approach is insufficient.

Generally speaking, the Chinese government states that "we should maintain adequate liquidity at a proper level and see that aggregate financing and money supply stay in step with the projected economic growth and CPI increase."

While specific policies may fluctuate between relaxed to rigid in different stages, overall stability is maintained. 

The loosening or tightening of monetary policy concerns the aggregate, while the report emphasizes more on the structure, hoping that monetary policy will be "precise and effective." This calls for combining monetary with credit and financing policies to generate joint effects. 

The government report says, "We should adjust both the monetary aggregate and structure, put idle funds to good use and step up support for major strategies, key areas and weak links. We should work for a steady decline in overall financing costs. We should improve the monetary policy transmission mechanism to prevent funds from sitting idle or simply circulating within the financial sector. The underlying stability of the capital market should be enhanced." 

The focus here is still on high-quality development, emphasizing not only the direction of incremental investment but also the revitalization of existing resources and efficiency improvement.

Incremental investment must create substantive value, preventing funds from idly circulating within the financial system. 

As for the capital market, the report emphasizes enhancing underlying stability, which requires systematic reforms to enable the capital market to serve the real economy more effectively.

It can be seen that while requiring financial support for economic development, there are also requirements for the following: risk prevention, avoiding extensive expansion, revitalizing existing resources to resolve risks, keeping the cost of social financing stable with a slight decrease, preventing idle capital and maintaining basic stability in the exchange rate of the renminbi. All of these aim to promote economic development while preventing risks. In summary, stability is to be maintained while promoting development and preventing risks.

This is the first time that "fintech, green finance, inclusive finance, pension finance and digital finance" have been mentioned in the annual government work report. This is clearly defined in the segment about "major strategies, key areas and weak links" from the financial perspective, representing specific directions for financial support for the real economy's development. From the viewpoints of financial workers, to do well in these five areas, we cannot focus solely on finance but must take into consideration the work tasks mentioned in the report to study how to excel in these five areas. For example, we may vigorously promote the construction of a modern industrial system, develop new quality productive forces and promote innovative development of the digital economy.

The report particularly emphasizes the importance of better meeting the financing needs of small and medium-sized enterprises (SMEs), requiring relevant institutions to optimize supporting measures such as financing credit enhancement, risk sharing and information sharing. This area is currently a major weak link in the economy and a key link in solving economic development and employment issues. Optimizing supporting measures such as financing credit enhancement, risk sharing and information sharing is currently a sore point for SMEs facing financing challenges. It should be noted that this cannot be achieved solely by financial institutions. It requires the collaboration and concerted efforts of regulatory policies and fiscal resources, along with the assistance of other departments. In addition, it should also be noted that the current difficulties in funding for SMEs are not only caused by financing challenges, but a considerable portion is due to a large amount of accounts receivable being withheld. The report proposes a series of requirements in order to solve the problem.

The report also proposes "making plans for new reforms, for fiscal and tax systems." It says, "We will implement plans for the reform of the financial system and increase fiscal, tax and financial support to promote high-quality development." 

In other words, a new round of fiscal and tax reform will be initiated. Meanwhile, financial system reform has taken place since the establishment of the National Financial Regulatory Administration (NFRA) and the adjustment of functions between the People's Bank of China, NFRA and China Securities Regulatory Commission during "Two Sessions" last year. Although there is still much work to be done in this regard this year, the previous Central Financial Work Conference and Central Economic Work Conference made specific arrangements, which include building a strong financial country, doing well in the five major areas, namely: preventing and resolving financial risks, strengthening financial supervision, expediting institutional opening-up and combating financial corruption.

Regarding financial work, the report also specifically mentions "improving the system of financial regulation and raising our capacity for preventing and controlling financial risks." This is because, with the development of the modern economy, finance plays an increasingly important role in economic development, while the impact of financial risks on the economy also growing steadily. In addition, globalization and opening-up have placed China's economy and financial sector under the impact of international economic and financial risks, which pose higher requirements on financial regulation in terms of systems and mechanisms, as well as from a regulatory perspective, scope, means and capacity. Therefore, "improving the system of financial regulation and raising our capacity for preventing and controlling financial risks" is an inherent requirement for speeding up the construction of a strong financial country and institutional opening-up in the financial field.