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Opening Up Financial Sector Can Drive Reform of Other Sectors

By further opening up its financial sector, China could be expected to advance the reform of exchange rate formation mechanism and the capital account convertibility, says a commentator

By Xu Mouquan Updated Apr.16

China will further open up its market – including in particular its financial market, announced Chinese President Xi Jinping while addressing the Boao Forum for Asia 2018. Aside from the benefits to the real economy, further opening-up of the financial market will also stimulate and accelerate reform in other fields, noted Deng Xinhua in a commentary for The Beijing News.

Once the entry threshold for foreign institutions is lowered, there will be more external capital, advanced levels of financial service and more competitors, all of which are beneficial to the real economy and help reduce financial risks. More importantly, it will act as a lever to accelerate other major reforms, Deng said. 

China’s current central banker Yi Gang once said that one rule for opening up the financial sector is that it should be accompanied by reform of the exchange rate scheme and capital account convertibility. 

The two areas have much to do with many existing imbalances in China’s economy. In the early 2000s, the yuan's exchange rate was undervalued, causing the country’s foreign exchange reserves to rise rapidly, and China had to issue more currency, which has, to a degree, driven up property prices. Now the imbalances that have plagued China’s economy will be alleviated, Deng noted.