BEIJING, Feb. 9 -- At the National Financial Work Conference held in Beijing January 19 and 20, new policies for the finance industry were outlined. The outcome can be expected to have a far-reaching influence on the sustainable development of China's economy.

    After a boom of export-oriented trade for more than two decades, China has become a global trading power while its financial sector is still in the primary stage of development.

    As a result, the excessive liquidity caused by the gigantic foreign exchange reserve cannot be cushioned by the financial system. The country is waking up with a big headache in maintaining economic growth.

    Since China is still in economic transition, its fledgling financial sector is unlikely to copy the financial framework in developed economies. Hence, a financial reform tailored to the Chinese economy in transition saw its blueprint at the conference.

    The sustainable development of the economy relies heavily on reforming its banking sector, which harbors the majority of the country's financial resources.

    China's banks are weak in derivative financial tools and intermediary businesses. Therefore, most of them can only profit from making loans, which are subject to stringent limits in interest rates and exchange rates.

    The banks, even the entire banking system, would face instability in case of fluctuation in interest rates and exchange rates if the banks do not improve corporate governance and sharpen their competitive edge.

    The People's Bank of China, the central bank, has taken a series of moves to aid the financial restructuring of the State-owned banks in an effort to get them listed on overseas stock markets, showing the government's determination to reform the banks.

    At the conference, the authorities announced that the Agricultural Bank of China, the only one of the Big Four State-owned banks not publicly listed, would be restructured to strengthen its role as a financial service provider for farmers and county-level businesses. This is certainly a firm step in furthering the reform of the State-owned commercial banks as well as the financial sector.

    Yet, challenges abound on the banks' way to higher competency. The most important one is to change their governance after they become publicly traded companies.

    The central government has also realized the importance of providing better financial service in rural areas. The rural economy is troubled because the financial service suppliers cannot support its development.

    The farmers are forced to turn to illegal loan-makers or even usurers to raise money. Such borrowing is both expensive and risky, which in turn cuts back farmers' profits.

    The rural population sees a widening income gap with their urban counterparts, weakening consumption capability and deteriorating living standards. Farmers' lack of access to credit is one of the direct reasons for the stagnant consumption level of much of the country and a threat to efforts to build the harmonious society.

    This groundwork in dealing with the problem was laid at the financial work conference. The authorities are trying to make substantial breakthroughs in introducing competition, assigning the roles of different service suppliers and establishing strong financial supervision.

    Another vital item on the conference agenda was boosting the development of the capital market.

    Since China's capital market cannot offer enough financial tools for investors with different investment plans and different levels of risk tolerance, capital is poured into stocks, producing bubbles on the stock market. The result is a market characterized by dramatic ups and downs.

    Far from being the major channel for corporate financing, the stock market does not have adequate binding power over the publicly traded enterprises. The share price often has nothing to do with an enterprise's performance. The stock market is, therefore, turned into a field of speculation.

    The decision-makers are determined to nurture the bond market and the insurance market. The goal is to diversify the sources of corporate financing and ease the pressures on the banking system. A sound capital market would help the imbalances in economic development.

    A new strategy of macro control over the economy was also raised at the conference to reduce the negative economic influence posed by excessive liquidity.

    Interest rate and exchange rate reforms would be promoted to ensure that the monetary polices hit home.

    Medium and small businesses and those engaged in high-tech sectors would get favorable treatment in applying for bank loans. This would be part of the national effort to encourage the manufacture of products with higher added value.

    The managers of the foreign exchange reserve are also required to produce a more professional performance. And the government is to improve the results from its public service investments.

    During the conference, guidelines and policies were mapped out for the financial opening-up and the country's financial security. Concerns include supervision mechanisms in the financial field and the necessary financial legal texts.

    Touching the most pressing major financial issues, the measures, strategies, policies and decisions announced at this latest financial work conference form a complete sketch for financial reform fitting well into the country's financial realities.

    (Source: China Daily)