Morgan Stanley: Supply-side reform boosted Chinese capital market

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04:23

The Tsinghua PBCSF Global Finance Forum published two new reports showing the Chinese government's plans to support direct financing for better serving the real economy and arranging funds. Xing Ziqiang, Morgan Stanley's chief economist for the Chinese market said the share of direct financing in the bond and equity market had gradually increased thanks to China's opening-up.

Xing mentioned China's supply-side reform had boosted the capital market and improved capital allocation efficiency while the increasingly direct financing is going to improve the transparency of the financing system in China.

"The opening-up will also help China to improve regulation and corporate governance. We are now introducing more and more credit rating firms to the market, and we are getting more long-term high-quality foreign investors who focus more on information disclosure," Xing said.

Morgan Stanley has published a study on China's opening-up of the capital market, and the conclusion showed that China's bond market has a balance of diversification and return.

Xing pointed out the market offers great opportunities for global investors.

"China is shifting from an investment-oriented to a consumer-driven economy. That means China's saving rate is declining gradually, and there will be more deficit in coming years. So we should get more portfolio inflows to finance the gap in the current account," he said, noting that "now China needs foreign capital and foreign capital wants to come to China more than ever."

The PBCSF report also showed that risks for China's financial system dropped in the first half of 2019 compared with last year. Xing noted China is in a much better shape to manage potential risks, such as large swings caused by foreign capital flows.

"China has more than three trillion foreign reserves and 1.4-trillion-U.S.-dollar net foreign assets, which are the highest in the world… and as long as we continue to follow through supply-side reform in the macro economy, we will see more sustainable economic growth offering sustainable return from the market,” Xing added, saying "that is going to reduce the risk of large swings."