Implement targeted measures to accelerate the development of a strong financial nation

The “Fifteenth Five-Year Plan” outline calls for accelerating the building of a strong financial country; improving the central bank system to form a scientific and sound monetary policy framework; establishing a comprehensive macroprudential management system; and fully strengthening financial regulation to build a risk prevention and mitigation system, ensuring the sound and steady operation of the financial system.

Experts believe that to promote high-quality financial development and accelerate the building of a strong financial country, it is necessary to improve the “two-pillar” policy framework of monetary policy and macroprudential policy, firmly hold the bottom line of preventing systemic financial risks, and ensure that monetary policy delivers effective support to the real economy.

Improving the mechanism for base money injection

Experts said that building a scientific and sound monetary policy system requires continuously improving the monetary policy framework from multiple dimensions, so as to better ensure the effectiveness of monetary policy in supporting the economy.

In terms of total volume, it is necessary to improve the base money injection mechanism, continuously reduce attention to quantity targets and the tendency to focus on scale, and at the same time improve the liquidity injection mechanism with a mix of short-, medium-, and long-term maturities to maintain a reasonable growth of total financial aggregates.

Regarding the improvement of the base money injection mechanism, Zhang Jun, Chief Economist at China Galaxy Securities, said that the central bank has resumed open market transactions of government bonds and has carried out buyout-type reverse repos, further enriching the ways it injects base money. In the future, for liquidity injections across short, medium, and long terms, it is expected to further create or enrich tools. Meanwhile, structural monetary policy tools are also expected to be further created and optimized, becoming an important way for the central bank to inject base money.

“Improving the base money injection mechanism may include improving both the targets and the functions.” Zhang Wenlang, Chief Macro-Economic Analyst in the Research Department of CICC, said. On the target side, it may place more emphasis on guiding the overnight interest rate toward the policy rate. On the function side, monetary injections may further stress structural guidance, improving the efficiency of resource allocation. In addition, through government bond buy-and-sell operations, while the central bank manages the ebb and flow of base money, it can also enhance its ability to regulate the bond market.

Zhao Wei, Chief Economist at Shenwan Hongyuan Securities, said that while the “Fifteenth Five-Year Plan” outline proposes improving the base money injection mechanism, it also proposes improving the market-based mechanisms for the formation, regulation, and transmission of interest rates. This reflects that monetary policy will place even greater emphasis on transmission efficiency and its impact on the real economy.

“Currently, the 7-day reverse repo rate has become the main policy rate; in the future, the central bank may further strengthen the transmission of short-end rates to the long end and to the credit market.” Zhao Gege, Chief Macro Analyst at Everbright Securities, said.

Enriching macroprudential management tools

The macroprudential management system is a package of institutional arrangements that plays an active role in preventing systemic financial risks. Experts said it can be approached by strengthening the monitoring and assessment system for systemic financial risks, and enriching the macroprudential management tool kit, among other steps.

“The ‘two-pillar’ framework is indispensable. Macroprudential policy and monetary policy have policy synergies and can coordinate with each other to increase the space and capacity for countercyclical adjustment.” Zhang Jun said.

In Mingming’s view, Chief Economist at Citic Securities, the current macroprudential management system is undergoing two major core transitions: extending from a “single sector” to “full coverage,” and shifting from “post-event governance” to “prevention before the event.” It places more emphasis on comprehensiveness, forward-looking orientation, and innovation.

With a focus on building a comprehensive macroprudential management system, a report recently released by KPMG China said that in the future, on the one hand, the central bank will improve the regulation of key financial institutions—for example, by strengthening additional oversight of systemically important banks and, as appropriate, issuing a list of systemically important insurance companies; on the other hand, it will strengthen its macroprudential management work in financial markets, cross-border capital flows, and the real estate sector.

The central bank is expected to further innovate and enrich its policy tool kit. The above-mentioned report proposes that, on top of existing tools, it can further expand macroprudential management tools targeting financial markets, financial institutions, real estate finance, and risk disposal resources.

For example, in recent times the central bank has mentioned several times that it is studying the establishment of a liquidity support mechanism for non-bank financial institutions under specific circumstances. This is both a forward-looking arrangement to prevent systemic financial risks and a necessary measure to maintain stable operation of financial markets.

Systematically strengthening financial risk prevention and control

Preventing, defusing, and resolving financial risks is an enduring theme of financial work and a baseline task for safeguarding national economic and financial security. Experts said that it is necessary to comprehensively strengthen financial regulation to ensure the sound and steady operation of the financial system.

“During the ‘Fifteenth Five-Year Plan’ period, financial risk prevention and control will place even greater emphasis on systemic, forward-looking, and effective measures, forming a full-chain institutional system covering ‘prevention—early warning—disposal—accountability,’ and comprehensively enhancing the resilience of the financial system.” Hu Yuwei, Chief Policy Analyst at CICC Investment Securities, said. The approach to prevention and control is not only limited to traditional risk governance; it will also focus on resolving structural risks, addressing institutional deficiencies, and conducting forward-looking management of potential risks, ensuring that the financial system can operate in a sound and steady manner in a complex and ever-changing domestic and international environment.

Hu Yuwei further said that, on the one hand, it is necessary to improve the regulatory framework for systemically important financial institutions, strengthen capital constraints and liquidity management for systemically important institutions such as large banks, insurance companies, and securities firms, and prevent the risk of “too big to fail.” On the other hand, it is necessary to orderly resolve existing stock risks, promote market-oriented and rule-of-law-based resolution of high-risk financial institutions, strictly curb moral hazard, and firmly hold the bottom line of preventing systemic financial risks.

The “Fifteenth Five-Year Plan” outline proposes to support financial institutions in carrying out capital replenishment in a prudent and orderly manner, improve risk resolution mechanisms for small and medium-sized financial institutions, enrich risk disposal resources and tools, and strengthen the financial stability guarantee fund, deposit insurance fund, and other industry guarantee funds.

“While supporting capital replenishment for financial institutions, the ‘Fifteenth Five-Year Plan’ outline also seeks to advance the institutionalization and rule-based approach to risk resolution for small and medium-sized financial institutions. This not only implies that there will be opportunities for innovation in future channels for capital replenishment for local small and medium-sized financial institutions, but also implies that rule-based, institutionalized risk resolution systems for financial institutions may be introduced.” Chen Hao, Senior Researcher at the Research Department of the Financial Industry, Xingye Research, said.

Yuan Haixia, President of the China Integrity International Research Institute, suggested that for financial institutions with relatively light risks, the authorities can help them restore normal operations by increasing capital replenishment and accelerating disposal of non-performing assets. For institutions with greater risks that cannot survive independently, it is necessary to uphold and promote mergers and reorganizations, such as absorption mergers and new establishment mergers, to further optimize institutional layout.