GLGA Vision | The First Bund Summit Focuses on Financial Opening Up with Blockchain as the Significant Impetus

2019-10-29 11:02:48  Source:GLGA   Author:GLGA Research Institute

Introduction: The "2019 Bund Summit", co-sponsored by the China Finance 40 Forum (CF40) and the Huangpu District Government of Shanghai, was held in Shanghai on October 27 to continue opening up the financial industry and speed up the construction of Shanghai as an international financial center. 

High-degree opening up is essential to promote the China's economy in pursuing high-quality development. Currently, China joins the "fast lane" in financial opening up, as we have launched a series of major measures to open up the financial industry wider. How to arrange the financial opening up next? How to give full play to the significant impetus of blockchain? The Green Legal Global Alliance Research Institute collates the important views of the experts at this Summit, focusing on issues such as financial opening up, fintech and wealth management. 

Strive for early and pilot implementation of more measures for financial reform and innovation in Shanghai 

How to proactively adapt to the new political and economic trends in the world and fully play the role of financial "booster" is a prominent topic of the Summit. Shanghai has made great efforts to expand the financial opening up, and has taken the initiative to put major measures to accelerate the development and opening up of China's financial services into effect; it has also worked to promote the financial reform and innovation, and actively strived for early and pilot implementation of major measures for financial reform and innovation in Shanghai, which represents the exploration for financial reform such as the convertibility of China's capital account. 

In the new terrain, how can the State Administration of Foreign Exchange (SAFE) cooperate with Shanghai to further expand its financial opening up? Lu Lei said that the SAFE would further support foreign institutions in setting up or controlling securities, futures and operating institutions in Shanghai; and extend support to qualified non-financial enterprise groups to establish financial holding companies in Shanghai; meanwhile, it would also further facilitate exchanges, expand pilot implementation of convenient foreign exchange receipts and payments of goods trade, and study the convenient businesses for capital account foreign exchange receipts and payments in the whole city of Shanghai. 

"We will take steps to further promote the construction of RMB financial asset allocation and risk management center, continue to open up the bond market, integrate investment channels in the bond market, and normalize the pilot QDLP in Shanghai", Lu Lei said, and the SAFE will devote itself to developing the derivative market of RMB interest rate of foreign exchange, researching and launching RMB interest rate options, further enriching the types of foreign exchange options and other products, and building an open and competitive foreign exchange market. 

How to reshape insurance resilience with low interest rate contagion 

Against the backdrop of continuous risk of economic recession and the rising trend of monetary easing, the increasing demands for risk aversion in various countries lead to the further contagion of negative interest rates around the world. At the same time, China's market interest rate is also hovering at a low level. 

However, the historical experience tells us that the long-term low interest rate will exert a significant impact on the assets and liabilities of insurance companies, which may go bankruptcy in case of severely low interest rate, and thus jeopardizing the development foundation of the industry. In this respect, the long-term low interest rate is nothing else but a potential crisis with high probability and enormous impact. 

Miao Jianmin, Executive Director of CF40 and Chairman of PICC, said that forestalling and defusing financial risks usually have a bearing on "resilience". According to the principles of sustainable insurance operation issued by the Finance Initiative of the United Nations Environment Programme, adequate resilience constitutes the basis and prerequisite for the healthy and sustainable development of the insurance industry. 

"Confronting the risks and challenges posed by the low interest rate, we should make early preparations. That means we should optimize the business model, and strengthen asset-liability management, anticipation management and counter-cyclic management to reshape the resilience of China's insurance development." Specifically, Miao Jianmin put forward three suggestions: 

First, optimize the business model and consolidate the underpinning of insurance resilience; second, strengthen asset-liability management and enhance insurance resilience support; third, reinforce the anticipation management and counter-cyclic management, and boost the sustainability of insurance resilience. 

Blockchain serves as an important impetus of financial innovation 

Huang Qifan, Academic Counselor of China Finance 40 Forum (CF40) and Vice President of the China Center for International Economic Exchanges, pointed out that with the gradual penetration of blockchain technology in the financial field, the underlying technological implementation model of individual cross-border transfer has also begun to be rewritten. In the past, individual cross-border transfers require crossing payment institutions, banks and international settlement networks, an inefficient process due to serial processing. Now, the blockchain technology can be used as the interface technology between payment institutions and commercial banks. The multi-party in cross-border remittance transfers the remittance messages to each party concerned through the blockchain technology, so as to attain multi-party collaborative information processing, parallelize the original serial processing among institutions, and improve the efficiency of information transmission and processing. However, we should also respect the selectivity of payment methods by mankind while maintaining the rapid development of new payment methods. 

In the digital era, some enterprises try to challenge the position of sovereign currencies by issuing Bitcoin and Libra, the blockchain-based decentralized currencies which are deprived of the sovereign credit. As their issuing basis remains unguaranteed and currency value is volatile, it is difficult to truly form social wealth. As far as I'm concerned, Libra will not succeed. For sovereign states, the best way to exercise the right to issue currencies is to issue digital sovereign currencies by governments and central banks. In the course of issuing digital sovereign currencies by Global Central Bank, in addition to improving the convenience and security, a new rule should be formulated to combine digital currencies with the credit of sovereignty, and establish an appropriate proportion for digital currencies to national GDP, fiscal revenue and gold reserves, as a way to curb excessive issuance of currencies through a certain mechanism. 

The significance of the digital currency (DC/EP) to be introduced by the PBC is that it is not the digitalization of the existing currencies, but the substitution of M0. It considerably reduces the degree of dependence of trading links on the accounts, which is conducive to the circulation and internationalization of RMB. Furthermore, DC/EP can collect data, such as money creation, bookkeeping and flow in real time, and thus provides a useful reference for the money input and the formulation and implementation of monetary policy. The PBC has been researching on DC/EP for five or six years, so I believe that DC/EP is becoming mature. The PBC is very likely to be the world's first central bank to introduce digital currencies. 

Li Wei, Director of the Science and Technology Division of the PBC, said that it is necessary to study blockchain technology profoundly, push for the deep integration of blockchain and the real economy, and overcome the inaccessibility of financing, banking risk control, and departmental supervision for small and medium-sized enterprises. He pointed out that promoting digital transformation is of great significance, which constitutes the key to determining the core competitiveness of commercial banks in the future. As the application of blockchain technology features prominently in the digital transformation of commercial banks, we should develop application scenarios according to technical characteristics, intensify innovation, and establish a security system to ensure the safe and orderly development. 

He also stressed the necessity for in-depth study of the applicability and safety of new technologies. We should fully assess the potential risks of new technology and business integration, establish and improve trial-and-error and fault-tolerant mechanisms, secure safety barriers, tighten compliance criteria, and clamp down on application gauges to prevent technological risks from spreading to the financial field. 

How to manage wealth in China 

Zhu Yunlai, the financial professional, former President and Chief Executive Officer of CICC, said that China has scored enviable achievement in pursuing economic development over the past 40 years since the reform and opening-up, and that China has now entered into a new stage, where further reform and opening-up are required. 

"Now we are confronting trade wars, but there is no need to worry too much about new arguments and discussions, which are also an experience on the road of decades of economic development", Zhu Yunlai said. Although now we are undergoing the so-called anti-globalization, he believes that, ultimately, all countries in the world will find that trade is beneficial to the world as a whole and to the economies of all countries. 

Zhu Yunlai stressed that compared with China's holistic economic development, China's development in the financial field is still incomplete, so it is necessary to consider new strategic measures in a scientific, prudent and systematic manner, further open up to the world, and speed up reform. He pointed out in particular that plenty of wealth has been accumulated over the four decades of development since the reform and opening-up, totaling about over RMB300 trillion in the original value of RMB. Therefore, we will have to struggle to find a way to manage wealth, especially the long-term investment in the end. On this front, the international market may offer some mature experience and more opportunities for us to choose from. 

Source | China Finance 40 Forum (CF40), Comprehensive Collection from