Dong Ximiao, The Development of Inclusive Finance and the Trend of Local Financial Regulatory Reform
At the 2023 5th International Factoring and Chain Finance Conference held recently, Dong Ximiao, chief researcher of Zhaolian and part-time researcher of the Institute of Financial Research of Fudan University, delivered a keynote speech, sharing with the participants the development of inclusive finance and the review and current situation of local organizations, local financial supervision, and issues and suggestions on the development of inclusive finance and local financial supervision.
The following is the full text of Dong Ximiao's speech:
1. The development of inclusive finance and local financial organizations
1) The results of the 10-year development of inclusive finance.
From the Third Plenary Session of the 18th Central Committee of the Communist Party of China in November 2013 when inclusive finance was officially proposed to the issuance of the "Implementation Opinions on Promoting the High-quality Development of Inclusive Finance" in October 2023, inclusive finance has officially gone through ten years, and it should be said that the results of this decade are very significant.
Data released by the People's Bank of China and the State Administration of Financial Supervision show that China's inclusive financial development has achieved remarkable results in the past ten years. First, the coverage of financial services has been significantly expanded, and basic financial services in counties and rural areas have developed rapidly. At present, the branches of banking institutions nationwide cover 979% of townships. Second, the availability of financial services in key areas has continued to improve, and financial services such as small and micro enterprises and "three rural" areas have been enhanced. As of the end of August 2023, the balance of inclusive small and micro enterprise loans nationwide was 274 trillion yuan, the number of credit accounts is 61.07 million, and the average annual growth rate of the balance in the past five years is about 25%. Third, the cost of inclusive small and micro loans has continued to decrease, and the sense of service acquisition and satisfaction have been continuously enhanced. From January to August 2023, the average interest rate of newly issued inclusive small and micro enterprise loans nationwide was 48%, a cumulative decrease of 3 from 20171 percentage point.
2) The inclusive financial service system is sound.
China's inclusive finance has formed a multi-level, wide-coverage and differentiated service system. From the perspective of institutions, I believe that there are three types of entities that provide services for the development of inclusive finance: the first type is the formal financial institutions we are talking about, such as banks, insurance, trust and other institutions. The second type is local financial organizations, including commercial factoring companies, which were originally called 7+4, but now they are more often called "7+n". The third category is Internet companies, including large Internet platforms and small and medium-sized Internet companies, which are the special suppliers of inclusive finance in China.
3) The positive role of local financial organizations in the development.
I believe that local financial organizations have three important roles: one is an important part of China's financial market, the second is an important force for the development of inclusive finance, and the third is an important supplement to formal financial institutions. It should be said that the financial management department has also seen the positive significance of local financial organizations, and on December 31, 2021, the central bank issued the "Regulations on Local Financial Supervision and Administration" (draft for comments), and the central bank has a sentence in the drafting instructions - "In recent years, the local financial industry has developed rapidly and played an important role in serving the regional real economy and the financing of small and medium-sized enterprises." The "Implementation Opinions on Promoting the High-quality Development of Inclusive Finance" mentioned just now also affirmed the positive role of local financial organizations.
The role of different local financial organizations is different, and commercial factoring has played an active role in the development of first-class chain finance and supporting the financing of small and medium-sized enterprises, and the growth rate is also very fast. The Secretary General of FCI also said just now that the global growth rate in 2022 will be 18%, and our domestic growth rate will be slightly lower at about 10%. In fact, commercial factoring also has an important role in promoting the construction of the commercial credit system, which is a service that we can provide in addition to financing, and I think this is actually very important.
2. Review and current situation of local financial supervision
Since the 90s of the last century, China has gradually handed over the local financial supervision functions and risk disposal to the local government under the premise of insisting that financial supervision is mainly a matter of power, and the local financial supervision has in fact turned from "single and single" to "single and multi-layer", and the problem of local financial supervision has arisen.
From an institutional perspective, our system of local financial supervision and control, including departmental rules and administrative regulations, has been continuously improved. Everyone is very concerned that the State Administration of Financial Supervision and Supervision will put the responsibility for formulating rules and regulations for local financial organizations on the bureau of cracking down on illegal activities. In fact, this has a historical origin, so you don't need to pay too much attention to it. In 1998, the Measures for the Suppression of Illegal Financial Institutions and Illegal Financial Business Activities were promulgated, which made it clear that local people were "responsible for organizing, coordinating, and supervising work related to the banning."
In November 2013, the "Decision of the Communist Party of China on Several Issues Concerning Comprehensively Deepening Reform" clearly stated that the responsibilities of local financial supervision and risk disposal should be defined. On December 31, 2021, the Regulations on Local Financial Supervision and Administration (draft for solicitation of comments) proposed to clarify the responsibilities of local financial supervision, improve the local financial regulatory system, and improve the efficiency of local financial supervision, but unfortunately the regulations have not yet been promulgated. At the same time, 19 provinces across the country have enacted local financial supervision and management regulations, including our Guangdong Province. In March 2023, Article 9 of the "Plan for the Reform of Party and State Institutions" specifically emphasized the deepening of the reform of the local financial regulatory system, and proposed the establishment of a local financial regulatory system dominated by the dispatched agencies of the ** financial management department.
From an organizational point of view, as early as 2002, Shanghai established a financial services office, and since 2008, local financial offices have begun to become independent or semi-independent. Since 2017, various provinces and cities have officially upgraded the financial bureaus and financial offices to the financial supervision bureaus, and incorporated the regulatory responsibilities of commercial factoring companies, which were originally the responsibility of the commerce department, into the local financial supervision bureaus.
Of course, the local government actually bears a limited regulatory responsibility in financial supervision. From the perspective of regulatory objects, they are mainly local financial organizations; From the perspective of regulatory authority, the regulatory rules are mainly formulated by the financial management department, and the local government is responsible for daily supervision and risk disposal; From the perspective of the level of responsibility, some authorities that cannot be delegated are subject to some constraints.
3. Problems and suggestions of local financial supervision
1) Face up to the problems existing in local financial supervision.
Of course, I think there are some problems with local financial regulation. First, the construction of the legal system of local financial supervision is insufficient, except for the "Regulations on the Supervision and Administration of Financing Guarantee Companies", other regulatory rules on local financial organizations are departmental rules or normative documents, and the level is low. Second, the division of powers and responsibilities between local and financial institutions is not clear enough, and there are some conflicts in some areas, including the supervision of formal financial institutions. Third, there is a conflict of roles between local financial regulatory departments themselves, and local financial regulatory bureaus should be responsible for daily supervision and risk disposal, as well as promote local financial development.
2) Deepen the reform of the local financial regulatory system.
The next step is to continue to deepen the reform of the local financial regulatory system. This first-class financial work conference emphasized strict access standards and regulatory requirements for small and medium-sized financial institutions, and timely disposal of risks of small and medium-sized financial institutions. ** The Economic Work Conference stressed the need to crack down on illegal financial activities. All these put forward higher requirements for local financial supervision. Therefore, in the next stage, the local financial regulatory system will definitely be further reformed, and the specific plan is believed to be announced shortly after. Personally, I suggest that we build a "local financial regulatory system with the participation of the main local government and vertical below the provincial level".
3) Suggestions for deepening the reform of the local financial management system.
First, it is necessary to promulgate local financial supervision regulations as soon as possible, and to give the local government corresponding functions and powers, and to give greater authorization in terms of laws and administrative regulations. Second, reasonably define the division of responsibilities between the local government and the local government, and the division of powers and responsibilities. Here's a suggestion that provinces with a good regional financial environment and strong regulatory capacity could expand their authority and responsibility for the access and supervision of small financial institutions and local financial organizations. Third, the establishment of a dual coordination mechanism between local and financial supervision, the Office of the Financial Commission to establish a local financial supervision coordination mechanism, and the local Party Committee Financial Committee can also establish a coordination mechanism for financial supervision. Fourth, it is necessary to reposition the local financial regulatory departments, mainly responsible for the daily supervision and risk disposal of local financial organizations.
4) Promote the high-quality development of local financial organizations.
Finally, I would like to put forward a suggestion that we should take various measures to further promote the sustainable and high-quality development of local financial organizations. As an important supplement to inclusive finance, local financial organizations, including commercial factoring companies, have played an active role in serving the key areas and weak links of inclusive finance and filling gaps and gaps in the market. Several of the proposals of this ** economic work conference are still relatively positive, such as emphasizing the establishment of first and then the break, and the promotion of stability. Therefore, it is necessary to implement the spirit of the first-class economic work meeting, and the local financial organizations should be reasonably positioned and appropriately supervised, and the local financial organizations should be guided to play an active role. I call for a correct and comprehensive understanding of the history and role of local financial organizations, and not to look at them through colored glasses.
Of course, local financial organizations should adhere to their original aspirations and focus on their main business. Continuously improve the strength and ability to serve the real economy. The theme of today's conference is "High-quality Development of Commercial Factoring Companies and Key Areas of Inclusive Finance", which is also a clear requirement of the "Guiding Opinions on the High-quality Development of Inclusive Finance". Another suggestion is that while serving the key areas of inclusive finance, commercial factoring companies should also pay attention to the service of the weak links of inclusive finance, and do the work that formal financial institutions are unwilling to do and do not do well.
(According to Dong Ximiao's speech at the 5th International Factoring and Chain Finance Conference 2023).