At a time when China is under the pressure of economic decoupling from the US government, and its own challenges arising from domestic economic structural upgrade, some top government officials stressed in recent days that the country will not only continue to open up financially, but also enhance the level of reform with a shift to "institutional opening."
It is a necessary step that China must take, in order to enhance the quality of domestic financial products and services by bringing in overseas expertise, as well as a prerequisite to reducing dependence on the US dollar settlement system, experts said.
China needs to overhaul its financial systems to better align them with international standards, so that China's internal economy would interact with global markets and investors in a more efficient way, at a time when the country is emphasizing "a dual circulation" strategy, which could become a key priority in the government's 14th Five-Year Plan (2021-25).
During the 2020 Bund Summit, held from Friday to Sunday in Shanghai, Fang Xinghai, vice chairman of the China Securities Regulatory Commission, said that China will "stand on a new point" in the opening of its financial sector.
"Along with opening up cross-border investment and financing, we will attach more importance to the connection of systems and rules (between China and other markets) and push China's capital markets from partial, channel-based opening-up to comprehensive institutional opening-up," Fang said.
"China is not opening up its financial or other sectors just to ease China-US economic and trade friction. Instead, it is ushering in overseas capital and companies to encourage competition, as well as optimize China's internal financial development," Zhou Yu, director of the Research Center of International Finance at the Shanghai Academy of Social Sciences, told the Global Times on Sunday.
He also said that only by enhancing the yuan's internationalization could China shake off its reliance on the US dollar, so that China will not worry about potential financial sanctions by the US, such as cutting China off from the US dollar-denominated payment system.
Compared with past reforms that focused on creating or easing financial link channels, like the Qualified Domestic Institutional Investor program, systemic reforms, like the negative list system, remove a lot of restrictions in areas including capital inflows and outflows, Zhou said.
People's Bank of China Governor Yi Gang said at the Bund Summit that China will use a negative list and pre-establishment national treatment system for the financial sector. The government will continue to improve support systems for the yuan's usage, he said, but the authorities will ease restrictions on the yuan's cross-border usage.
Fang also disclosed that China will establish a system to help offshore enterprises issue Chinese Depository Receipts in China, as well as improve the stock link mechanism between Shanghai and London so it can cover "major European capital markets."
Wu Chaoming, chief economist at Chasing Securities, told the Global Times that China needs to participate in the formulation of global economic and administrative rules, instead of evading them. It should also align its domestic systems with international rules. "Neither will be possible if China does not implement opening-up policies," he said.
Wu and Zhou stressed that China should ensure that reforms or policies are implemented thoroughly. Otherwise, overseas investors will still face obstacles even with policy convenience.
Zhao Qingming, a veteran financial expert, said that financial opening-up does not necessarily lead to uncontrolled capital inflows, as the "barbaric development" period for overseas companies has passed.