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Mr. Udaibir S Das, Jonathan Fiechter, and Tao Sun

financial innovation be conducted under the principles of “cost accountable, risk controllable, and information sufficiently disclosed.” We have also introduced a host of detailed rules governing banks’ wealth management activities, credit card business, derivatives trading, bond underwriting, etc. In addition, we constantly improve our tools and techniques for offsite surveillance and onsite examinations, enhance the synergy of different supervisory functions in the supervision of financial innovation, and strengthen our undertakings in consumer protection and public

Mr. Udaibir S Das, Jonathan Fiechter, and Tao Sun

Abstract

Over the past decade, China has maintained a stable financial system during a period of rapid economic expansion and significant structural change and reform. This commendable performance reflects the great strides made by the Chinese authorities in deepening financial reform, mitigating financial risks, and strengthening supervisory capabilities. But, until recently, it has also reflected a willingness by government to periodically draw on the public purse to relieve the banking system of bad debts and inject sizable amounts of capital. The authorities are fully aware of the moral hazard involved in these types of state intervention and are keen to promote a financial system that is better prepared to contain its own risks. The urgency for doing so is heightened by the knowledge that both domestic and cross-border systemic linkages in China are intensifying as the size and complexity of the financial sector expands, and as the authorities encourage further financial innovation to better service the needs of a dynamic economy.

Mr. Udaibir S Das, Jonathan Fiechter, and Tao Sun

Abstract

China’s Twelfth Five-Year Plan identifies greater integration with the global financial system as a strategic priority. The focus and attention given to financial integration is entirely appropriate, as China will need to combine its large role in global trade with a comparatively important position in the global financial system if strong and balanced growth is to be achieved and sustained over the medium term.

Mr. Udaibir S Das, Jonathan Fiechter, and Tao Sun

Abstract

As a result of years of efforts, China’s capital markets have grown in size and capacity. They are playing an increasingly important role in supporting national economic and social development. By the end of September 2012, there were 2,489 listed companies on China’s stock markets with a combined RMB 21.39 trillion (US$3.37 trillion) in terms of market capitalization, the third highest worldwide. The outstanding amount of bonds under custody reached approximately RMB 23.06 trillion (US$3.64 trillion) (Appendix Table 11.1), also ranking third worldwide after the United States and Japan. The volume of commodity futures traded in China has been ranked as the highest in the world for two consecutive years (Appendix Table 11.2).

Mr. Udaibir S Das, Jonathan Fiechter, and Tao Sun

Abstract

Popular discussions about the prospects of China’s currency—the renminbi—range from the view that it is on the threshold of becoming the dominant global reserve currency to the concern that rapid capital account opening poses serious risks for China. A number of recent academic studies have pointed to the renminbi’s rising importance in the international monetary system, although these studies are divided on its prospects of becoming a dominant global reserve currency (Eichengreen, 2011b; Frankel, 2011; Subramanian 2011; and Yu, 2012).

Mr. Udaibir S Das, Jonathan Fiechter, and Tao Sun

Abstract

Since the onset of the new millennium, China has clearly put forward the strategic objective to build a market-oriented and more open economic system. Deepening financial reform and expanding openness to foreigners have become important goals. Guided by this objective, the key tasks include deepening financial institutional reform, developing financial markets, encouraging financial innovation, and advancing reform of price formation mechanisms for interest rates and exchange rates.

Mr. Udaibir S Das, Jonathan Fiechter, and Tao Sun

Abstract

To examine China’s sovereign balance sheet and its potential risk factors relevant to financial stability, this chapter presents a stylized balance sheet for the period from 2000–10 to show that sovereign equity has gradually grown, implying a low probability of a sovereign debt crisis in China. The chapter then discusses China’s overall debt-to-GDP ratio (leverage ratio), which is higher than those in other G20 emerging market economies and therefore warrants policy attention, and also analyzes the related structural and institutional aspects relevant for management of the sovereign balance sheet.

Mr. Udaibir S Das, Jonathan Fiechter, and Tao Sun

Abstract

The turnaround of the Chinese banking system has been impressive. Supported by capital injections and key policy reforms—including improved prudential standards and gradual financial liberalization—the banking system is moving toward better disclosure, gradually improved corporate governance, and increased reliance on market mechanisms.

Mr. Udaibir S Das, Jonathan Fiechter, and Tao Sun

Abstract

As China becomes a major player in the global economy, what are the key reform issues that would deliver systemic stability with growth in the financial sector? Finance is a key factor in support of real sector growth, but its fragilities can also upset growth. As the Chinese economy integrates more closely with the global economy, the capacity to deliver long-term, sustainable, and inclusive growth will require a careful sequencing of reforms in both the real and financial sectors that provide both internal and external balance. A systemic approach is necessary, since it is increasingly apparent that there are endogenous and exogenous factors accounting for systemic instability, requiring careful calibration of macro, micro, and institutional policies to enable the system as a whole to be more resilient to systemic shocks.

Mr. Udaibir S Das, Jonathan Fiechter, and Tao Sun

Abstract

China has reached a stage where further financial sector reforms appear essential. As the reform process progresses and macrofinancial linkages deepen, the preservation of financial stability will become a major policy preoccupation. This publication draws upon contributions from senior Chinese authorities and academics as well as staff from the IMF to discuss the financial policy context within China, macroeconomic factors affecting financial stability, and the critical role of financial system oversight. It seeks to improve the understanding of the financial sector policy processes underway and the shifts taking place among China’s economic priorities.