Motions related to stabilizing and revitalizing China's economy have flooded the on-going top political advisory meetings in Beijing, reflecting a sense of urgency that has swept the nation in dealing with the global financial crisis.
The nine-day Chinese People's Political Consultative Conference (CPPCC) starting on March 3 gathered over 2,100 delegates nationwide under one roof, including members from various political parties, industry and community leaders, and scholars.
Apart from the much repeated calls for spurring domestic demand and rural economic development, some proposals also covered new ground, such as developing Islamic banking to attract investment from the Middle East.
In this special focus, the Economic Observer has compiled a list of selected motions related to finance and economic issues submitted by the eight non-Communist political parties* in China.
We also draw comparisons between the ideas raised by these non-Communist parties and the current administration's policies and direction on the same issues.
(*note: Under China's multi-party co-operation and consultation political system, the Chinese Communist Party (CPC)-led government holds exchanges - especially during the CPPCC - with eight other approved political parties, which do not have official political leadership roles but are not considered the opposition.
The parties are: The Revolutionary Committee of the Chinese Kuomintang (RCCK); China Democratic League (CDL); China Democratic National Construction Association (CDNCA); China Association for Promoting Democracy (CAPD); Chinese Peasants and Workers Democratic Party (CPWDP); China Zhi Gong Party (CZGP); Jiu San Society (JSS); and Taiwan Democratic Self-Government League (TDSGL).)
Below are excerpts of selected motions, grouped by the following topics: Currency Policy; Stock Markets; Finance & Banking; Private Businesses.
Theme: Promoting the Renminbi
Proposal: Promote and Internationalize the Chinese Currency (by CDNCA)
Key-points:
- Promote the use of the Renminbi as a valuation and payment vehicle for international trade.
- China should gradually open up its financial markets, such as setting up a foreign currency overnight borrowing market, a Renminbi clearinghouse and allowing international institutions to issue Renminbi-denomination bonds in China.
Proposal: Push for the Liberalization & Internationalization of the Renminbi (by JSS)
Key-points:
- Freeing the Chinese currency in stages for open conversion, and gradually brew a Renminbi zone by promoting currency swaps, trade settlements and debt repayments in the Chinese currency among more ASEAN countries.
Related Chinese Government Measures & Official Stance:
- On internationalizing Renminbi: In late December last year, China's State Council launched a pilot project to use Renminbi to settle bilateral trade payments between Guangdong Province, the Yangtze River Delta, and the special administrative regions of Hong Kong and Macao.
The program also covers trade between Guangxi Zhuang Autonomous Region in Yunnan Province and ASEAN (Association of Southeast Asian Nations) members.
In addition, the People's Bank of China, the country's central bank, has also signed three currency swap agreements in the past three months with Korea, Hong Kong, and Malaysia. The agreements totaled 180 billion, 200 billion and 80 billion yuan respectively.
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Theme: Regulating Stock Markets
Proposal: Enact a Law for a Stock Market Stabilization Fund (by CDL)
Key-points:
- The funding should come entirely or primarily from the state, would be used to buy shares when Chinese stock markets plunged drastically.
- The fund should be chaired by top leadership such as chiefs of the economic working committee, or state-own assets watchdog, or Securities Regulatory Commission.
- Entrust the fund under the care of the central bank -- People's Bank of China.
- Spell out supervisory duties and legal responsibilities of various parties involved.
Proposal: Enhance Supervision on the Selling of Expiring Lockup Shares (by RCCK)
Key-points:
- Levy a windfall profit tax on shareholders who sell-off their expiring lockup shares.
- Establish a compulsory share-repurchase system.
- Launch an early-warning monitoring and regulatory system on potential sales of expiring lockup shares.
Related Chinese Government Measures & Official Stance:
- On market intervention: Though the Chinese government did not respond to an earlier call by the country's top think tank - Chinese Academy of Social Sciences - to set up a 600 to 800 billion yuan stabilization fund to unconditionally buy shares of 50 heavyweight Chinese firms, it did last September intervene when the Chinese stock index fell below 2,000 points.
It intervened by having Central Huijin - a subsidiary of China's sovereign wealth fund China Investment Corporation (CIC) - buy more shares of major state-owned banks to boost market confidence.
- On expiring lockup shares: In the final days of last year, a spate of foreign investors divested from Chinese state-owned banks, alarming the country's banking watchdog to call an emergency meeting, though no counter-measures have yet been revealed.
Sources who had attended the meeting said the possibility of using state controlled funds, such as Central Huijin and CIC, to buy back expiring lockup shares divested by foreign investors was raised.
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Theme: Regulating the Financial Sector
Proposal: Improve Financial Sector Regulatory Framework and Set up Early Warning Mechanisms (by CDL)
Key-points:
- Establish a unified financial sector regulatory body by merging the existing banking, securities and insurance watchdogs under the supervision of China's central bank.
- Consolidate financial intelligence sharing and set up a unified credit rating mechanism.
- Strengthen supervision of the innovation of financial products, especially on the securitization of mortgages.
- Formulate regulations to scrutinize overseas investments by Chinese financial institutions.
Proposal: Develop Islamic Banking and Financial Products in China (by RCCK)
Key-points:
- Explore the potential of developing Islamic banking, financial products and services, with emphasis on social responsibility instead of unscrupulous profit making. The Islamic system also bans lending on interest as usury.
- Establish a pilot project in the Shenzhen Special Economic Zone to experiment in Islamic banking, and build up co-operation with other Islamic banking countries, especially the oil-rich Middle Eastern nations.
- Train Islamic banking specialists, this would take at least a decade or more to yield desired results.
Related Chinese Government Measures & Official Stance:
- On a financial crisis early warning system: The Chinese government has put a financial crisis early warning network on trial late last year.
The trial required banking, securities and insurance watchdogs to submit monitoring information to the Chinese cabinets on a daily basis.
Among the data under close monitoring included commercial banks capital adequacy ratio and non-performing loan ratio. Banks have also been told to report their exposure to US dollar investment bonds and carry out stress tests on their loans.
- On Islamic banking: China's special administration region Hong Kong - the regional financial hub - has recently drafted plans to promote a level playing field for Islamic banking and financial products vis-a-vis conventional ones.
Back in 2006, the Chinese state-owned CITIC Group joined hands with Barhrain's Shamil Bank to set up a 100-million-US dollars Islamic Fund to invest in the real estate sector.
The potential of greater cooperation with Islamic nations and corporations adhering to sharia banking policy and financial products have has gained the attention of Chinese officials in recent years. For instance, the local government of Ningxia autonomous region - a muslim-dominated region - last year held a special forum to discuss ways to introduce Islamic banking and finance.
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Theme: Promoting Private Enterprises
Proposal: Promote the Private Sector as the Engine of Growth and Jobs Creation (by CDL)
Key-points:
- Eliminate monopolies to create a fair and competitive business environment.
- Implement existing policies related to the private sector efficiently and introduce more incentive measures.
- Provide tax incentives to spur the growth of private businesses.
- Expand credit facilities to private businesses.
- Promote innovation and creativity among private businesses.
Proposal: Assist Small and Medium Enterprises (SMEs) to Weather the Financial Crisis (by CDNCA)
Key-points:
- Introduce tax incentives and government subsidy programs to alleviate rising costs for private businesses.
- Improve the existing credit guarantee system to ensure risk-prevention and compensation.
- Relax controls over the financial sector and guide private capital to set up small and medium-sized banks in support of SMEs.
- Expand credit facilities for SMEs.
Proposal: A New Mechanism to Solve Funding Problems among Small and Medium Enterprises (by CAPD)
Key-points:
- Explore new channels for SMEs to raise funding.
- Promote Small and Medium financial institutions to cater for SMEs needs.
- Relax control over community lending activities.
- Improve credit rating system for individuals and companies.
Related Chinese Government Measures & Official Stance:
- On monopolies: China's Anti-trust Law came into effect in August 2008, but it has a clause stating that state-owned enterprises (SOEs) tied to the nation's economic lifeline and state security enjoy special rights.
A further consolidation of some 140 state-owned companies under the care of the central government is underway, and the move will make the remaining firms (around 80 to 100 of them by 2010) larger and stronger.
- On taxes: The government has been upping the export tax rebate rate to help export-oriented industries, especially the textile sector, which is largely made up of private small and medium firms that are labor-intensive.
Late last year, the government waived the value-added tax for equipment purchases, a move to encourage machinery upgrading and technology advancement among domestic companies.
- On credit facilities: To encourage credit guarantee companies in providing cover for SMEs to access loans, the central government has injected one billion yuan into 330 credit guarantee companies.
Credit guarantee companies were also asked to reduce service charges for SMEs, and explore flexible collateral requirement.
Some local authorities, such as Beijing Municipal government has invested 1.5 billion yuan to set up a credit re-guarantee agency, which helps to strengthen the capacity of credit guarantee firms in extending their services to SMEs and enhance risk prevention mechanism.
The government has also singled out SMEs as a target group for receiving new loans to be issued this year. The government has pledge to release at least 5-trillion-yuan in new loans this year, but how much would be channeled to SMEs remained to be seen.
Last year, the Chinese government launched a pilot project for establishing micro-credit companies, a move that has allowed some of the once-underground community lending activities to be legalized.
