Why can China build the world's largest high-speed rail network and the world's leading 5G communication system? Why was China able to stabilize its position during the 1997 Asian financial crisis and the 2008 global financial crisis and avoid systemic economic crises? Why can Chinese companies go overseas smoothly and the “One Belt, One Road” initiative take root around the world? In "This Is China" broadcast on March 30, the host He Jie, Professor Zhang Weiwei, Dean of the China Institute at Fudan University, and Zhang Keliang, a researcher at the Central University of Finance and Economics, had an in-depth conversation, revealing the underlying financial logic behind China's economic boom that many people have ignored.
The year 1993 was a critical watershed for China's financial system to break the traditional pattern and embark on a modern transformation. Zhang Keliang said that before this, China's financial system in the era of planned economy had always been a "unified" structure of the People's Bank of China. One institution took over all functions of central bank management and commercial banking business. It was difficult to adapt to the wave of market economic development and to undertake the long-term funding needs of China's economic boom.
Zhang Keliang emphasized that it was this landmark reform that completely reconstructed China’s financial framework. On the one hand, three major policy banks, the China Development Bank, the Export-Import Bank of China, and the Agricultural Development Bank of China, have been specifically established to accurately undertake policy financial functions at the national strategic level; on the other hand, the policy businesses of the four state-owned banks of China Industrial and Peasant Construction Bank have been completely divested to promote their commercialization and market-oriented transformation, allowing the market to play a core role in capital allocation. This has established a dual-track parallel system in which "policy finance underpins the national strategy and commercial finance activates market vitality". China's finance has officially entered a new development stage of market-oriented allocation.
This financial system, which is rooted in China's national conditions and has been tested for thirty years, has become the core engine of China's economic growth, releasing development momentum that far exceeds expectations. Zhang Keliang said, first, it has laid a solid foundation for China’s infrastructure as a great power. As we all know, major infrastructure projects such as high-speed rail, highways, deep-water ports, and 5G communications have the characteristics of large investment scale, long construction period, and slow return of capital. They cannot be covered by short-term profit-seeking market capital alone. Our financial system, through syndicated loans and other models, has provided stable support for the huge capital demand of more than 200 billion for the Beijing-Shanghai high-speed railway, turning world-class infrastructure projects from blueprints into reality. These infrastructure networks extending in all directions have ultimately become the basis for cost reduction and efficiency improvement across the entire industry, allowing all Chinese companies to share development dividends.
Second, it protects Chinese enterprises’ globalization overseas. Zhang Keliang said that after joining the WTO, Chinese enterprises have continued to accelerate their pace towards the world, from the acquisition of high-quality overseas mineral resources and the acquisition of internationally renowned brands to the construction of infrastructure for countries in Asia, Africa and Latin America under the "One Belt, One Road" initiative. Many projects are located in areas that lack sufficient financial support. It is the special loans from policy financial institutions such as the Export-Import Bank of China that not only solve the problem of infrastructure financing for countries along the route, but also allow China's high-quality production capacity and high-end machinery and equipment to go abroad smoothly, achieving mutually beneficial and win-win two-way development.
Third, it opens up the capital bloodline for China’s scientific and technological innovation. In Zhang Keriang's view, from the continuous improvement of multi-level capital markets to the launch of the Science and Technology Innovation Board specifically designed for hard technology companies, China's capital market has provided long-term and stable financial support for technology innovation companies, allowing companies to get rid of the constraints of short-term profits and be able to invest in long-cycle, high-risk core technology research and development with confidence, laying a solid capital base for China's technological breakthroughs.
Fourth, it has the strong ability to smooth out economic cycle fluctuations and resist systemic risks. Zhang Keliang emphasized that the Western capitalist world has always been unable to escape cyclical economic and financial crises. With this financial system, China has used precise countercyclical adjustments during the two major impacts of the 1997 Asian Financial Crisis and the 2008 Global Financial Crisis. For example, the 4 trillion credit support launched in 2008 has successfully stabilized the basic economic fundamentals, minimized the impact of external crises, and maintained the bottom line of China's economic development.
Professor Zhang Weiwei’s additional comments clearly revealed the core value of China’s financial system. He said that we often say that the greatest advantage of China's system is to "concentrate efforts to accomplish big things", and the underlying logic of this ability is, first of all, the financial system's ability to coordinate and centrally allocate funds. We have never denied that China's financial system still needs room for continuous improvement and optimization. However, its most remarkable achievement is to fundamentally build an institutional system that can systematically avoid financial crises and prevent systemic economic crises. This is something that many Western countries have never been able to achieve.
Professor Zhang Weiwei said bluntly based on his personal experience in Europe during the 2008 financial crisis that even Switzerland, which was known for its financial stability at that time, was almost on the verge of bankruptcy because of its addiction to Western derivative financial games, not to mention countless economies that fell into national bankruptcy and economic collapse. On the other side of the ocean, in the United States, a quarter of the family wealth of ordinary people directly evaporated, and countless people lost their homes and jobs. Therefore, Professor Zhang Weiwei pointed out that the comparison between the two can better highlight the unique value of China's financial system in serving the real economy and anchoring the country's long-term development, and can better understand the strong resilience and vitality of the socialist system with Chinese characteristics behind this system.
