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Financial reform is only way forward

By Xu Gao (China Daily) Updated: 2015-08-11 11:02

Financial reform is only way forward

Investors at a brokerage in Fuyang, Anhui province. Between mid June and early July, the Shanghai Composite Index tumbled nearly 30 percent from its peak, prompting the government to take a series of rescue measures to stem the slide. [Photo/China Daily] 

Fluctuations expose risks during crisis, and the price paid for rescuing the market is impossible to ignore

For investors, the stock market turmoil has been a terrifying experience. But when you look at the broader picture, the crisis has offered a unique learning opportunity for the financial regulator and the industry as a whole.

From mid June to early July, the Shanghai Composite Index tumbled nearly 30 percent from its highest point, wiping off nearly $3 trillion in the value of shares. Government initiatives have since stemmed the slide, but the market is still prone to violent swings.

The market fluctuations have hit China's financial system while the price paid for rescuing the market is impossible to ignore. Already there are doubts being expressed about the pace of financial reforms. Those doubts need to be dispelled.

It is crucial that they continue as China looks for new engines to drive its economic growth. Emerging industries, the service sector and private businesses are playing an increasingly important role in this process.

They demand financial services that can no longer be provided by the old system, dominated by big banks. Reform, therefore, is necessary during China's economic transition.

As the country pushes its Belt and Road Initiative to revive the ancient Silk Road, China will inevitably become more integrated into the global economy.

The yuan will play a greater role on the currency markets, while the newly formed Asian Infrastructure Investment Bank will continue to raise China's financial profile. Coupled with this, international capital and institutions are expected to play a bigger part in the Chinese markets.

Yet all this is only possible through financial reform. In fact, it is only by going down this road that China will be able to further open up and increase its global influence.

So far, this policy has proved extremely successful. The rapid development of wealth management products has enabled depositors to earn higher investment returns.

The launch of online share transfer platforms for unlisted startups has increased the funding options for small businesses that were excluded from capital markets.

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