Former bank governor sees great potential

Lujiazui Forum hears expert view that further financial opening up is indispensable to China as proportions of external funds and institutions are still at a very low level.

The former governor of China’s central bank told the 2019 Lujiazui Forum in Shanghai that he sees a lot of potential for opening up in the financial sector.

Zhou Xiaochuan, former governor of the People's Bank of China, said that in China's banking, insurance and capital markets, the proportions of external funds and external institutions are still at a very low level.

China had no direct financing market in the past, Zhou said, and the equity market was especially weak, which led to a lack of financing methods such as venture capital that can support the development of science and technology. 

Further financial opening is indispensable to China, he said.

"But it's important to note that in today's world, there are sometimes abnormal flows in the capital markets, and controls and management such as anti-money laundering and anti-terrorist financing are also essential," Zhou added.

The world economy has been struggling since the international financial crisis, with countries sourcing for new growth drivers in the new round of technological and industrial revolutions given the worldwide lack of growth momentum. Meanwhile, protectionism and unilateralism are on the rise along with profound changes in the course of globalization.

Speaking of the US-China trade disputes, Zhou said that it might trigger competitive currency devaluation just as in the global financial crisis.

"There's no winner in a trade war, everyone loses," he said. "This means that the GDPs of all relevant countries are facing varying degrees of contraction. On a macro level, the side effects of slower economic growth are usually accompanied by more aggressive or expansionary fiscal and monetary policies."

Meanwhile, the trade friction will damage people's confidence and also hit the financial markets, Zhou said.

"As for a permanent cure, we should try to make trade policy return to the normal track through trade talks and WTO reforms," Zhou added. "For China, we should explore other markets to make up the reduction in its exports to the United States, which could take about two to three years with some supportive policies.”

Paul Romer, co-recipient of the 2018 Nobel Prize in economic sciences, said there will certainly be some volatility but no need to worry about the current situation in the long run. China has done well in times of great volatility and will certainly do so again, he said.

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