China will enhance and diversify the financial markets as well as gradually ease its grip over interest and foreign exchange rates.
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A development plan for the financial sector in the 12th Five-Year (2011-2015) Period envisages the contribution of the financial services industry to China's gross domestic product to rise to 5 percent, from an annual average of 4.42 percent during the last decade.
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Direct financing, which includes equity and bond sales, will account for 15 percent of total social financing, up from 11 percent in the previous five years, according to the plan co-released yesterday by the People's Bank of China, the China Banking Regulatory Commission, the China Securities Regulatory Commission, the China Insurance Regulatory Commission and the State Administration of Foreign Exchange.
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"Financial services are playing a bigger role in economic growth, and the plan stresses necessary reforms to meet with the changing situation such as increasing cost, aging population and the lack of support to small businesses," said Ba Shusong, a researcher with the State Council, China's Cabinet.
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The plan also pledges to "make significant progress" on interest rates liberalization, "further improve" the mechanism of foreign exchange rates, "gradually realize" the yuan's convertibility under the capital account, "firmly expand" cross-border use of the yuan, and steer the banking, securities and insurance industries to be more market-oriented.
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Liberalizing interest rates will depend on pricing of Shanghai Interbank Offered Rate, equivalent of the London Interbank Offered Rate, or Libor, and maturity of mid- to long-term yield curve, the plan said.
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The plan encourages the opening of capital account through foreign direct investment, securities investment, bank lending and cross-border trading under individual accounts.
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The PBOC said it would shift its reliance from quantitative methods such as using bank reserve requirements to pricing methods such as interest rates.
