The State Council of China recently approved and published the Notice on Important Tasks concerning the Economic System Reform in 2012 submitted by the National Development and Reform Committee (NDRC) (the NDRC Notice). The NDRC Notice sets out the focus of China’s economic system reform in 2012, being the first year of China’s 12th Five-year Plan.
The following points addressed in the NDRC Notice are worth noting:
- The government will encourage the investment of private capital into various industries, such as railway, municipal facilities, financial services, energy, telecom, education and medical institutions, most of which are currently state-monopolies. Various government authorities are assigned to encourage and guide their reorganisation and the participation of private capitals in the reform of state-owned entities.
- Internal governance and risk management of state-owned large-scale financial institutions will be further strengthened and the relevant regulators will promulgate guidance on the corporate governance of commercial banks. The government will encourage the development of financial institutions which serve small and micro enterprises and rural markets. Meanwhile, the government will continue its pilot programs to allow financial institutions to conduct cross-industry investment (e.g. commercial banks may invest in fund management companies, insurance companies and securities companies may invest in commercial banks).
- Regulators will endeavour to establish an effective mechanism for risk prevention, pre-warning, assessment and response in respect of possible systemic financial risks. In addition, the new regulatory standards governing the banking industry will be implemented. The General Lending Principles (which were promulgated in 1996) will be amended in order to regulate better lending activities in the current market and to guide the emerging market of private financing (which has been operating in a non-compliant fashion and has caused serious problems in some wealthy regions of China).
- China will continue interest rate marketisation reform and further improve the RMB exchange rate formation mechanism. RMB's convertibility under capital items (e.g. cross-border equity investments or loans) will carry on step by step and the scope within which RMB may be used for cross-border trade and investment will be further enlarged.
- Foreign investment will be guided towards high-end manufacture and high-tech industries, with a geographical focus on the central and western regions of China. The government will improve management and risk control concerning outbound investment by Chinese enterprises and implement the “going global” policy at a “stable pace”.
In the executive meeting on 28 March, the State Council approved Wenzhou (a very wealthy city in Zhejiang Province) to be China’s financial reform experimental zone where, amongst other things, private financing will be permitted and better regulated, and convenient channels will be established to allow Chinese individuals to carry out outbound direct investment. This represents an exciting step forward as to the reforms set out in the NDRC Notice.
For further information, please contact Sun Hong.