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Possible financial conflicts between China and the United States in the future

[Abstract] China’s economic growth relies too much on the idea of ​​credit supply and must be adjusted. If this idea is not adjusted, more banks will be set up and more financial services will be maintained. The so-called supply-side structural reform, the task of deleveraging has not been fully completed until now, and this must be sustained. The financial work conference held in mid-2017 was very clear and the requirements were clear.

However, due to the economic downturn and the intensification of Sino-US trade conflicts, many of the requirements of the Financial Work Conference have not been implemented and have not been adhered to. At that time, there were many references, such as the financial chaos must be rectified, and even proposed to be step-by-step, but later, due to a little change in the situation, the focus of work has been adjusted, and some new content should be added, such as the new construction of international payment clearing channels. What to do with small banks, what to do with big banks, we really have to have a set of plans.

First, the institutional level. Many people are worried that it will force us to open the door and force us to open up the financial market to a greater extent. Not long ago, the Chinese government once again reiterated the liberalization of the equity ratio of financial institutions. Some financial institutions promised that there will be no restrictions on the proportion of equity after two years. Will this have a fatal impact on us? It should be said that we have considerable autonomy, and how big the door is, depends on ourselves.

Banks account for the majority of China’s financial system, whether it is from the proportion of assets or the impact of economic life, banks are still the main. Everyone is worried that if foreign banks come in to set up their own banks, the proportion of equity will not be restricted, and will not grasp the lifeblood of the Chinese banking industry. As long as we do not want to let the bank’s controlling stake out, we will not have such a situation. After the disintegration of the Soviet Union and Eastern Europe, several countries in Eastern Europe basically did not have their own national banks, all of which were Western banks. That was the result of their own choice.

I don’t think China will go to that point. why? The establishment of diplomatic relations between workers and peasants, plus several major banks such as the Postal Reserve, the state-owned shares are absolutely controlled. Like ICBC, the Ministry of Finance plus Huijin’s shareholdings together exceeds 75%. It is not considered social insurance and ICBC shares bought by state-owned enterprises in the secondary market and other markets. Others are more than 60% of state-owned holdings. Under such circumstances, the only possibility for foreign investors to establish a joint venture between workers and peasants is that our existing state-owned major shareholders will transfer shares or large-scale capital increase, and our major shareholders will no longer follow up, and then gradually dilute the inventory in the process of foreign investment. enter. In short, autonomy is in our hands. As long as we are not willing to do so, it is impossible for foreign capital to take control of it.

Other banks are counted by legal entities, with more than 4,000 in the country and 48 companies that are actually listed. Remove these big ones, and then remove the shareholding system of China Merchants, China Everbright, People’s Livelihood, and CITIC. The remaining ones are relatively small, and it is possible to achieve the purpose of holding through such practices. But frankly speaking, it is difficult for them to want to call for rain in China’s financial market.

I think it is worth noting that there are a few small industries, such as asset management, fund companies, and insurance. If these industries are not well prepared, there may be some problems. Frankly speaking, the management of these industries is weaker than banks and lacks sufficient experience. So in this respect, as General Secretary Xi said in 2017, I am afraid we must have two lines of defense and three lines of defense. The liberalization of the external equity ratio is a kind of declaration of openness, and it is necessary to declare how to prepare for the future. The establishment of the second line of defense and the three lines of defense must be clear.

For example, financial institutions, including banks, including these financial institutions, should strengthen supervision and inspection, on-site inspections, and off-site inspections. The punishments that our regulators now have on domestic institutions, especially foreign-invested institutions in China, do not play a role in fines. Our administrative regulations limit the power of regulators to impose fines. For example, the CSRC will only pay 100,000, 200,000 yuan and 300,000 yuan for profit by manipulating the stock market and insider trading, and their improper profits are completely Disproportionate, not to say that the law is illegal, the cost of violating the rules is also very low. The Fed’s annual income from fines and confiscations is billions of dollars and tens of billions of dollars. It is not only for China, but also for Western countries. It is not subject to any restrictions and how much punishment is imposed. We can focus on research. After the gate is opened, the second line of defense and the three lines of defense must be subject to regulatory standards.

First of all, will the United States exclude Chinese financial institutions from the international financial market, especially the international settlement and international liquidation networks, which will no longer be used by us, or obstruct the banks and Chinese banks in various countries. This will not only affect the trading activities of our banks in the international financial market, but the entire foreign trade import and export will be affected.

Secondly, over the past decade or so, there has been a big change in the environment of the 1990s. SWIFT is no longer the only channel for the international settlement of several large Chinese banks. For example, ICBC has established a cross-border payment channel in parallel with SWIFT, called FVA. In 2018, the total number of cross-border payment messages handled by the ICBC account was 5.81 million, of which 55.73% went through SWIFT and 44.27% through the Group’s FVA system, which is basically half to half. . There is still a difference in this. It is the number of SWIFTs that have been reported abroad. The number of documents we have sent out has already accounted for 70%. There is already considerable substitutability in this respect.

Third, the United States has difficulty controlling global banks. Banks of various countries, such as the Industrial and Commercial Bank of China, have 2,000 agents. If the banks of various countries and the major banks in China are all cut off, it is difficult to have no UN sanctions resolution because there are many commercial interests in them. No. For example, if the United States sanctions Iran, China insists on only implementing the UN sanctions decision. If the United Nations is included in the sanctions list, we will implement it. Otherwise, it will not be afraid of his so-called long-armed jurisdiction. Therefore, it is not so simple to unify all the banking ideas of the world under the baton of the United States.

Fourth, the US sanctions on the entire Chinese banking system are difficult to achieve. The US sanctions against a Chinese bank, for example, it cuts off a bank’s international transactions, and this is not a concept of sanctions against the entire country’s banking system. If it really announces that the Chinese banking industry is sanctioned like Kunlun Bank and Dandong Bank of China, it is difficult to impose sanctions on all Chinese banks.

The most unfortunate thing is that China’s banking industry uses the Internet. Said online banking, through the bank’s own system direct connection, and even returned to the previous century before joining SWIFT, the traditional letter fax method for transaction settlement. In fact, before joining SWIFT in the last century, the Bank of China has existed for a long time, and the Industrial and Commercial Bank of China also exists. Of course, we are very uncomfortable at that step, but it is unlikely to return to that step.

We must speed up the construction of our own financial infrastructure, and find ways to do a good job of the domestic banks’ own international clearing channels. At least we can do it first and then go straight. After going out, we will encourage more banks to open accounts in our local banks because China Banks are now in fifty or sixty countries overseas, and ICBC is also a country of fifty or sixty. In these countries, major regions and countries that cover China’s international trade can cover major economies.

Fifth, the issue of sanctions against individual financial institutions. For example, huge fines, even closures, and even detention, criminal disciplinary officers have. The executives of our Spanish tour are still not allowed to leave the country. They are not allowed to return. They can only stay in Spain.

Sixth, prevent freezing of overseas assets. Now China’s banking industry has so many overseas assets, it is still relatively scattered. Is it necessary to properly control the total assets of Chinese banks in the United States? We must always educate senior executives and employees in US institutions, and must not violate US regulatory requirements and do not give them a handle. Because in the past, in the West, Chinese banks have limited sources of business and limited customers, and they have done a lot of business for the older generation of overseas Chinese. These customers sometimes engage in tax evasion and tax evasion to transfer money to Fujian and Zhejiang. China’s banking industry is often a Eyes close one eye. This must be strict, otherwise people say that you are laundering money.

Seventh, we must be aware of the business status of US-funded banks in China. The regulatory authorities and relevant financial institutions must have a clear grasp. Of course, foreign banks are usually more cautious in China, but business violations certainly exist.

Eighth, pay attention to the rating of international institutions on the credit of China’s financial institutions. Some well-known international rating agencies may use their voice and influence to lower China’s financial institutions and even lower China’s national sovereign credit rating. Standard & Poor’s and Moody’s claim to be neutral and independent. In fact, the US government can easily influence them. This will affect our financing costs in the international financial market. At present, in our foreign exchange funds, the small heads that rely on financing are mainly caused by double surpluses.

Therefore, the foreign financing of foreign exchange funds may not be our main contradiction. In fact, the income of S&P, Moody’s and other institutions in China accounts for a large proportion of their total income, and they will also weigh. It dares to do that, then how do you like to comment on how to judge, but your business will not be able to get it. In fact, China’s listed companies and listed companies are not fully and inaccurate in information disclosure, and rating companies are also difficult to get rid of. This is also a counter-measure.

Ninth, the exchange rate issue. In the final analysis, the exchange rate is still a trade issue. The depreciation is conducive to China’s exports, and the appreciation is conducive to the United States’ exports to us. The total foreign exchange reserves of more than 3 trillion US dollars is basically appropriate. Whether it is to protect foreign exchange reserves or to maintain exchange rates, this is a dilemma. If the exchange rate is excessively protected, it is necessary to take out some foreign exchange reserves to maintain the stability of the exchange rate. If you want to stick to the level of foreign exchange reserves, the exchange rate may be released appropriately.

Tenth, be wary of virtual currency transfer assets. Capital markets, including capital market stocks, bonds, futures, etc., the total amount of capital flight is limited, its impact on the capital market is not very large, the amount of this channel is still our own. It is important to pay attention to the virtual currency that people admire. We must be vigilant about the function of transferring money from virtual currency. We are very strict in other aspects, but the virtual currency is invisible and intangible. If it is not controlled, there may be problems. The US Treasury Secretary is more determined than the US currency to believe that it is affecting national security. At this point, we must pay attention.

The key is to maintain a certain set of strengths, and to develop several sets of plans. You can’t intentionally or unintentionally increase your financial risk in order to cope with some short-lived things.

History has proved many times that as long as the extraordinary credit is put in, it will be accompanied by the growth of large-scale non-performing assets after two or three years. It is not necessary to maintain immediate growth by sacrificing financial stability.

The thinking of some so-called financial “innovation” activities should be clear. We do not mention moderate supervision now, and propose an inclusive regulatory approach. I have always stressed that whether it is tolerant or moderate, it should be reflected in the regulations and systems; rather than saying that the system requirements are strict and that you are allowed to adapt in the process of supervision, I am afraid that this will not work. In fact, the externality of financial activities is very strong, and often there is a problem and then go back and clean up, the loss is great. Everyone knows that P2P has been bustling for a few years. In 2013, it was called “the first year of Internet finance.” It has only been six years since now, and it has been difficult to clean up everywhere. It is very difficult to know how to wipe the butt. Now public security organs everywhere have publicly said that people are not very good at catching it, because it is even harder to pay back people, but it is no trouble to arrest people and creditors.

China’s economic growth is overly dependent on the idea of ​​credit delivery and must be adjusted. If this idea is not adjusted, more banks will be set up and more financial services will be maintained. The so-called supply-side structural reform, the task of deleveraging has not been fully completed until now, and this must be sustained.

It seems that small and medium banks are doing more. First, its source of debt is very limited. It does not have so many outlets, but it wants to expand. Therefore, it relies on its peers and borrows from big banks. At the time of the international financial crisis in 2007 and 2008, the major banks in the United States, such as Lehman, also relied on market borrowing. When the market was raging, its liquidity would be lost instantly. This is a very dangerous thing.

The collapse of a bank is not just insolvency. As long as there is a problem with liquidity, it cannot be paid on time, and it will collapse. Some banks talk about their many assets, many of them are good, but can you get the loan back? You can’t get it back in a day, so if there is something wrong with the liquidity, you can’t hold it. Now these small banks are mainly not good because of the poor quality of their assets. The credibility is not very good. If the loan is not available, and the regulator has a large bank, it is not allowed to dismantle it. It will have problems.

The financial work conference held in mid-2017 was very clear and the requirements were clear. However, due to the economic downturn and the intensification of Sino-US trade conflicts, many of the requirements of the Financial Work Conference have not been implemented and have not been adhered to. At that time, there were many references, such as the financial chaos must be rectified, and even proposed to be step-by-step, but later, due to a little change in the situation, the focus of work has been adjusted, and some new content should be added, such as the new construction of international payment clearing channels. What to do with small banks, what to do with big banks, we really have to have a set of plans.

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