Serving the real economy

(Ecns.cn) – The financial service office seems to be a new concept in China, but it has in fact existed for quite some time, and has already started to play an important role in the country's economic development.

In 2011, after the Wenzhou lending crisis, local regulators and enterprises all felt the need to rise to an unprecedented challenge: regulating private financing and building the city into a distribution center of private capital.

The populace began to question the traditional financial management system of "one bank and three commissions," including the central bank, China Banking Regulatory Commission, China Insurance Regulatory Commission and China Securities Regulatory Commission, as they thought the model was not keeping pace with the times and neglected many systemic risks common to the current economic climate.

Currently, financial service offices only act as agencies that cooperate with the supervision organ of the central government to implement guiding principles, policies, laws, rules and regulations set by the state with respect to financing. At the same time they were to put forward suggestions on the work and organize the implementation in light of actual circumstances.

They are not government departments, so the problem is: can financial service offices become a bigger part of the solution for domestic risks to the financial system?

Between January 6 and 7, the 4th National Financial Work Conference was held in Beijing, after which the People's Bank of China, the central bank, said that to effectively counter economic and financial risks it would strengthen monitoring mechanisms over financial institutions while tracking domestic and international economic situations.

Moving up the ladder

On December 24, 2011, Wang Lu (alias) withdrew US$20,000 from a state-owned bank in Changchun, capital of Northeast China's Jilin Province, and immediately deposited it in the South Korean Hana Bank branch across the street, because this foreign bank offered a more preferential annual interest rate of 3 percent on the US dollar, reported China Economic Weekly.

Since 2006, a total of eight nonlocal and foreign banks have settled in Jilin. As a province whose economic output is not ranked among the top in China, its private economy has not been able to develop on a larger scale for decades. Even after the central government implemented a policy to revitalize the old industrial bases of Northeast China, the provinces of Heilongjiang, Jinlin and Liaoning did not take the giant step expected in the their economic reconstruction.

Such a big growth opportunity, yet the Northeastern Provinces could not make good use of it, just like a cook helpless before a table of rare ingredients and unable to make a single delicacy, said an unnamed expert from a local policy research office.

However, in recent years, capital financing has been a very active field in China. More and more local governments have realized that if they cannot deal with the changing situation, growth and social progress may become the bonded servants of finance capital deals.

Under such circumstances, in 2010, the Jilin Provincial Financial Service Office was formally established (after the General Office of Committee for Establishing Government Organizations formally approved the proposal). The decision to upgrade the financial service office from a non-governmental agency to an organization directly reporting to the provincial government level was considered a breakthrough and a promise from the government to support financial development, both of which were integral to achieving greater growth and stability.

In a short time, as a player on the national team so to speak, the financial service office won praise as an entity providing useful information and feasible channels to develop local capital markets in an all-round way, including setting up equity funds and forging ahead with listings plans for local companies.

Contributing to the real economy

With the number of formally-established financial service offices increasing across the nation, they collectively play a more and more important role in enhancing economic growth.

For example, after the Wenzhou lending crisis, the local government submitted a proposal to the Zhejiang provincial government about regulating private financing and building the city into a distribution center of private capital. Its first plan was to build Wenzhou into a pilot zone for financial reform and innovation, the healthy development of private financing, and model-building for quality financing services directed to small- and medium-sized enterprises, according to Xinhua.

To achieve the goal of better regulating private financing, the government said it would make full use of the financial service offices as well as non-governmental financing institutions, which implied the government has already realized their potential in regulating the financial market.

Meanwhile, after this year's National Financial Work Conference, China's major financial regulators have highlighted the necessity to curb systemic risks and maintain financial stability by all means in 2012.

According to Shang Fulin, head of the China Banking Regulatory Commission, the government must firmly hold on to the bottom line of no systemic and regional risks, and focus on potential credit and liquidity risks this year, and prevent the off-balance sheet risks from spreading.

Combining the efforts of "one bank and three commissions" with financial service offices nationwide, funding irregular lending and shadow banking markets may flow back to the financial system and be regulated to support the real economy; and in this way financial services will more closely serve the real economy.