CHEN Yuan: It is important to strike a balance between invigorating the market and strengthening financial regulatory capabilities

Source: WFF    

Published: 2020-12-07

The World Finance Forum Wuhan Summit & the 3rd World Finance Forum took place in Wuhan, China from December 3 to 5, 2020. The summit was hosted by the World Finance Forum and co-hosted by the Center for BRICS and Global Governance, a think tank in China, and the Reinventing Bretton Woods Committee. Themed “Redefining the World Economic and Financial Order in the Post-Epidemic Era”, the forum zeroed in on the changes and future of the world economic, financial and technological order since the onset of the Covid-19 pandemic, providing a platform for in-depth analysis and exchanges on climate change, green finance, digital economy, financial regulation, cross-border investment and other issues.

Mr. CHEN Yuan, Vice Chairman of the 12th National Committee of the Chinese People’s Political Consultative Conference (CPPCC), said at the opening ceremony that the global financial industry is facing new opportunities and challenges in the waves of Covid-19 and digitalization. The pandemic has served as a catalyst for the digital transformation in finance by accelerating and deepening the integration of digital technologies and financial services, when the rise of the digital economy opens up new avenues for the financial industry. New economic models call for new financial services. Fintech, a product of the intensive integration of finance and technology, is a paradigm of the “New Finance” and a key driver of the upgrading of the modern financial industry. The capabilities of traditional financial institutions to develop and employ fintech will be a valuable indicator of their future competitiveness. Data is becoming an increasingly important factor of production that has drastically transformed the financial industry. While digitization improves financial efficiency, it magnifies the complexity and vulnerability of the financial system. While it pushes further the boundaries of financial services, it also feeds into the infective and destructive power of financial risks. While digitization inspires innovative financial models, it complicates regulation. And while it creates new businesses, it also places unprecedented requirements on the financial industry. Today, integrity and innovation are essential for global financial governance in such a volatile and complex political and economic landscape across the globe. We must remain aware of the risks as we capitalize on the opportunities for digital development.

The financial services sector is the lifeblood of the economy, the development of which, in turn, depends on sound economic growth, noted Mr. Chen. Therefore, the financial industry needs to put the real economy first. As China is shifting to a dual circulation economy in which its domestic economic cycle plays a leading role while the international economic cycle remains its extension and supplement, the financial industry in China is expected to facilitate this paradigm shift. Technological innovation requires strong support for it to nudge China’s factor-driven economy to an innovation-driven one. Capital is key to current and long-term growth; credit, the foundation of finance, is key to the transformation of money into capital. Bad credit inevitably breeds financial instability. Internet and digital finance are, essentially, financial in nature. They are required to follow the laws governing how the financial machine works and to operate in accordance with relevant laws and regulations, and is subject to good credit scores. At present, to keep the credit of the country, enterprises and individuals at good standing is crucial for financial governance. When there is solid credit in each and every link across the financial system, the system itself stands strong. It is therefore necessary to accelerate infrastructure development, including an optimized credit investigation system, in order to better serve and regulate digital finance with digital technologies. At the same time, it is vital to upgrade debt credit and take it to the next level—equity credit and even international equity credit which is yet to be put in place, so as to bolster technological innovation and transnational collaboration, especially in digital technologies, which serves the financial security of all countries.

Mr. Chen stressed that we now need to adopt a two-pronged approach pursuing both financial innovation and better regulation, whereby laws and regulations are respected and financial stability secured. New formats of financial services continue to emerge owing to the growing application of new financial technologies, making our lives easier by boosting efficiency but also giving rise to higher financial risks. It is thus important to strike a balance between invigorating the market through greater financial innovation and openness and strengthening financial regulatory capabilities. More efforts are required in infrastructure and institutional development. Both regulators and financial institutions are expected to reinforce their knowledge bases and expertise in technology and digital economy. It is also critical that the financial regulatory system be enhanced through technological innovation and advancement, including AI and blockchain, in order to break down information silos through data sharing and to prevent financial risks. All this requires close cooperation and coordination between regulators, financial institutions, and technology enterprises.