Financial System Development

Project description

Title: Financial System Development
Commissioned by: German Federal Ministry for Economic Cooperation and Development (BMZ)
Country: China
Lead executing agency: People's Bank of China (PBC), China Securities Regulatory Commission (CSRC), City Government Tianjin, Inner Mongolia Autonomous Region
Overall term: 2010 to 2014

Context

As a member of the upgraded G20 forum, China has committed itself to implementing the principles agreed on in Washington in 2008 to address the causes of the financial and economic crisis and to actively participate in the reform of the global financial architecture. However, China has lacked the necessary experience. In addition, against the backdrop of the financial sector’s weak growth, there is a need for significant reform. This is particularly true for the G20 principles of transparency, integrity and regulation of the financial sector. Instabilities in the financial sector can have serious effects on the production of goods and services, which would be strongly felt on the global markets.

Objective

The G2 action plans’ principles of integrity, transparency, regulation and international cooperation are taken into account as a measure of financial sector reform in the PRC.

Approach

The project consists of four components:

Financial market stability. The Central Bank will receive advice in creating national enabling environments for detecting and reducing the number of system-relevant risks in the financial sector. Technical exchange will take place through a structured dialogue between German and Chinese actors in the context of workshops, symposia and conferences.

Capital market integrity. The Chinese Securities Regulatory Commission (CSRC) will be advised on reforming the investor protection system. The project aims to reform the legal and regulatory frameworks of the financial sector and strives to establish and improve investor protection institutions. Specific technical exchange will take place with the Federal Financial Supervisory Authority (BaFin).

Tianjin, Financial Centre. The city government of Tianjin city, which enjoys the same status as a province, will be supported in building a northern Chinese financial centre according to international principles of transparency and integrity. German know-how in designing an effective framework for financial supervision will be passed on through targeted advisory services and dialogue events.

Green Finance. The provincial government of Inner Mongolia developed innovative funding approaches to promote a low CO2 and ecologically sustainable economy as part of a pilot project. The skills of specialists and managers in the relevant local institutions will also be developed through advisory services, workshops and study tours (capacity development). Cross-border cooperation with the Gobi region of Mongolia is also part of the project.

Results achieved so far

The programme will continue its successful work in microfinance in China and will expand its activities into the capital market. Due to the creation of regulation for private microfinance companies, the Chinese private sector has been integrated into the hitherto state-owned financial sector for the first time. More than 1,500 companies have been formed. Reform of China's postal savings bank has followed the model of the Deutsche Postbank, again an important contribution to the stability of the financial sector. In collaboration with the programme, a Tianjin representative office has opened in Frankfurt, which now promotes German-Chinese economic relations. Building on the positive results, cooperation in Tianjin will continue in the new programme.

A bilateral agreement between the Chinese Securities Regulatory Commission and the BaFin has already been signed within the framework of the new programme and serves as a basis for further technical cooperation. Proposals to introduce an ombudsman system for capital market products and an early warning system for real estate bubbles are in place and will serve as the basis for a pilot project of the Chinese government in the following year.