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Premier Li Keqiang: Press Ahead with Market-based Reform of the Financial Sector

Premier Li Keqiang recently talked about deepening reform of China's financial sector and capital market.

Li Keqiang pointed out that reform and opening-up is the fundamental way to achieve development in China. Financial sector reform has always been market-driven and conducted on the basis of rule of law. Going forward, the Chinese government will, building on existing experience, combine the efforts to build Shanghai into an international financial center with the pilot financial reform of the Shanghai Pilot Free Trade Zone (FTZ). Efforts will be made to open up the financial sector both domestically and internationally, and explore and accumulate successful practices that can be replicated and applied elsewhere. On the basis of existing experience, measures will be taken to gradually raise the RMB convertibility under the capital account within the Shanghai FTZ, and expand the functions of existing free trade accounts. The government will study the launch of trials of overseas investment by qualified domestic individual investors and expand the reflow channel for overseas investment of the RMB. Support will be given to establishing overseas equity investment funds according to law, and rules and mechanisms will be improved for financial assets trading on the basis of summarizing the experience of the Shanghai-Hong Kong Stock Connect. Steps will be taken to innovate financial regulation, explore the possibility of a unified regulatory system for domestic and foreign currencies, strengthen regulatory coordination of cross-department, cross-sector and cross-market financial businesses, and step up early warning, prevention and resolution of systemic risks.

Market-based interest rate reform is an important part of the ongoing reform of the financial sector. Its centerpiece is to develop and improve market-based interest rate formation and regulation mechanism, better leverage the decisive role of the market in resources allocation, and increase market-based interest rate transmission efficiency. Removing the upper limit of the floating range of the deposit interest rate will galvanize financial institutions to accelerate the shift of their business model and improve financial services. It will contribute to the market-based interest rate system, increase the efficiency of capital utilization, promote direct financing and improve the structure of the financial market. It will also help to improve the interest rate formation mechanism based on supply and demand in the market, better leverage the role of interest rate in resources allocation, and enable the financial sector to better serve growth of the real economy.

Li said that since the beginning of the year, the international financial market has experienced constant volatility, and China’s capital market, the stock market in particular, has also gone through ups and downs. In response, relevant authorities of the Chinese government have taken timely measures to keep the market stable and forestalled potential systemic financial risks. In the meantime, we are steadily advancing reform of the financial sector with a focus on institutional building of the financial market. The purpose is to foster an open, transparent and multi-tiered capital market that enjoys steady and sound development in the long run.

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