Tag Archives: financial markets reform

Li Holds Fast To Financial Reform

Prime Minister Li Keqiang gave a boosterish speech on the new leadership’s commitment to economic reform to the World Economic Forum meeting in Dalian. There wasn’t much if anything new to the broad-brush proposals or to the timetable — gradual. The weight of the speech was more in that he made it than in its detail, and in his declaration that “China is now at such a crucial stage that without structural transformation and upgrading, we will not be able to sustain economic growth.”

That is a message that he and President Xi Jinping will be carrying into the Party’s Third Plenum to be held in November though there it may be less universally well received than it was by the WEF audience. In Dalian, Li did, though, make clear that financial-sector reform was central to the progress. He also held out some hope that foreign financial firms would be allowed a bigger slice of ownership of Chinese firms.

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China Takes Critical First Step To Liberalize Interest Rates

China’s long-awaited liberalization of its interest rates is a big deal. Initially it is a bigger deal symbolically than in reality; only the floor on the rates that banks charge for loans is being scrapped in this first move; the People’s Bank of China says it will proceed slowly with what it calls such a risky undertaking and the cap on deposit rates remains for now. A small portion of all loans will be affected immediately (only 11% of existing loans were made at a discount to the benchmark rate). But its importance lies in the fact that the first step has at last been taken in a critical leg of financial markets reform. It puts China firmly on the path to a fully convertible currency and floating exchange rates.

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Paulson’s Flying Trip To Beijing Provides Little Cheer

U.S. Treasury Secretary Henry Paulson’s flying visit to Beijing to prepare for the next round of strategic economic dialogue due in June was a glummer than usual affair.

Squeezed in between Washington appearances on Monday to announce his plan to restructure America’s financial regulation and a Thursday U.S. Senate hearing on the Bear Stearns bailout, Paulson briefed Chinese leaders on the U.S. economy and the risks that the credit crisis posed to the real economy.

Not that Chinese leaders haven’t been paying attention. “There is no doubt that what’s happening in U.S. markets clearly has to give pause to the Chinese,” over its own financial markets liberalization, the FT quotes Paulson as saying. “They may be too polite to say it directly.”

Concern, too, over investment – where both countries have been complaining about growing protectionism against each other. “This is an area where there has been a loss of confidence on both sides. More work needs to be done,” Paulson said.

The recent accelerated appreciation of the yuan, which has risen against the U.S. dollar at an annualised rate of about 15%-20% so far this year, was a rare bright note.

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