Abstract 

On September 27, the 8th meeting of the Financial Stability and Development Committee of the State Council kicked off to study issues such as deepening the reform of the financial system and enhancing the ability of financial services to serve the real economy, and to deploy key tasks next. 

The Green Legal Global Alliance Research Institute studied and organized the relevant news in a timely way. 

I. "Four requirements" are proposed at the meeting and risks tend to converge. 

"Four requirements" are proposed at the meeting. 

First, the financial system should carry out the decisions and arrangements of the CPC Central Committee and the State Council, adhere to the general keynote to seek progress in stability, effectively deepen the structural reform of the financial supply side, continue to do well in implementing a prudent monetary policy, intensify efforts in counter-cyclic adjustment, and maintain a reasonable and sufficient liquidity and a reasonable growth of the social financing scale. It was stated at the 7th meeting that "great efforts should be made to strengthen the counter-cyclic adjustment of macroeconomic policies and to dredge the monetary policy transmission. We should continue to implement a prudent monetary policy and maintain a reasonable and sufficient liquidity and a reasonable growth of the social financing scale." At the 6th meeting held on July 19, it was stated that "we should do a good job in implementing a prudent monetary policy, carry out counter-cyclic adjustment at the proper time and to an appropriate degree and maintain a reasonable and sufficient liquidity." 

Second, efforts should be made to further deepen the reform of policy-based financial institutions, improve the governance system and incentive mechanism, comply with the operating rules of financial institutions, and give full play to the counter-cyclic adjustment role of policy-based financial institutions in economic transformation and upgrading and high-quality development. This is a new requirement. 

Third, efforts should be made to speed up the construction of a long-term mechanism for capital replenishment of commercial banks, provide more capital replenishment channels of banks, and further dredge the transmission channels of the financial system to the real economy. Key support should be given to small and medium-sized banks for capital replenishment and the capital replenishment should be combined with the improvement of corporate governance and internal management in a bid to effectively guide small and medium-sized banks shift their focus downward, serve the local economic development and support private enterprises and medium, small and micro enterprises. The keynote of encouraging financial institutions to support private enterprises and small and micro enterprises remains unchanged and "the construction of a long-term mechanism for capital replenishment of commercial banks" is a new requirement. It was stated at the 7th meeting that "banks are encouraged to employ more innovative tools and channels to replenish capital; the due diligence exemption clause should be truly implemented in details; the enthusiasm of business personnel of financial institutions should be effectively mobilized; small and micro enterprises should be vigorously supported; support for the real economy should be strengthened." 

Fourth, high-level two-way opening up of the financial industry should be further expanded; overseas financial institutions and funds should be encouraged to enter the domestic financial market to increase the vitality and competitiveness of China's financial system. 

It was stated at the 6th meeting that "new steps have been taken in financial reform and opening-up". At the 7th meeting, it was advanced that "a good job should be done in the overall planning of the financial system reform in the near future to further open up." 

II. Financial Committee: High-level two-way opening up of the financial industry should be further expanded. 

On September 27, 2019, the 8th meeting of the Financial Stability and Development Committee of the State Council (the "Financial Committee'' for short below) kicked off to study issues such as deepening the reform of the financial system and enhancing the ability of financial services to serve the real economy, and to deploy key tasks next. The meeting was presided over by Liu He, a member of the Political Bureau of the CPC Central Committee, vice premier of the State Council and head of the Financial Committee and participants include leading comrades of all member units and relevant units of the Financial Committee. 

The meeting pointed out that at present, China's economy runs stably as the growth momentum is accelerating transformation and financial risks tend to converge. The financial system should carry out the decisions and arrangements of the CPC Central Committee and the State Council, adhere to the general keynote to seek progress in stability, effectively deepen the structural reform of the financial supply side, continue to do well in implementing a prudent monetary policy, intensify efforts in counter-cyclic adjustment, and maintain a reasonable and sufficient liquidity and a reasonable growth of the social financing scale. Efforts should be made to further deepen the reform of policy-based financial institutions, improve the governance system and incentive mechanism, comply with the operating rules of financial institutions, and give full play to the counter-cyclic adjustment role of policy-based financial institutions in economic transformation and upgrading and high-quality development. Efforts should be made to speed up the construction of a long-term mechanism for capital replenishment of commercial banks, provide more capital replenishment channels of banks, and further dredge the transmission channels of the financial system to the real economy. Key support should be given to small and medium-sized banks for capital replenishment and the capital replenishment should be combined with the improvement of corporate governance and internal management in a bid to effectively guide small and medium-sized banks shift their focus downward, serve the local economic development and support private enterprises and medium, small and micro enterprises. High-level two-way opening up of the financial industry should be further expanded; overseas financial institutions and funds should be encouraged to enter the domestic financial market to increase the vitality and competitiveness of China's financial system. 

III. The counter-cyclic adjustment was raised again to stress the role of policy-based financial institutions. 

Since September, several meetings have been held, emphasizing to strengthen protection of the real economy and requiring financial institutions and the real economy to come a long way together. 

At this meeting, it pointed out that efforts should be made to further deepen the reform of policy-based financial institutions, improve the governance system and incentive mechanism, comply with the operating rules of financial institutions, and give full play to the counter-cyclic adjustment role of policy-based financial institutions in economic transformation and upgrading and high-quality development. An international senior financial expert said that the meaning of policy-based financial institutions is relatively broad, not only including policy banks but also other non-bank financial institutions which may play a greater role, such as financing platforms of local government, venture capital companies and guarantee companies.  The counter-cyclic adjustment in the process of economic transformation and upgrading and high-quality development requires particular skills and meticulous care. To intensify counter-cyclic adjustment, efforts should be made from the sources of the counter-cyclic, i.e. the monetary policy and the fiscal policy.  It's noted that to give play the role of the counter-cyclic adjustment of financial institutions was mentioned in two meetings of the Financial Committee. 

IV. Small and medium-sized banks are supported to replenish capital and have their focus shift downward. 

For a long time, most small and medium-sized banks have been the main force to support small and small and micro enterprises. This meeting further emphasized the role of small and micro enterprises. This meeting pointed out that efforts should be made to speed up the construction of a long-term mechanism for capital replenishment of commercial banks, provide more capital replenishment channels of banks, and further dredge the transmission channels of the financial system to the real economy. 

Noticeably, the meeting stressed that key support should be given to small and medium-sized banks for capital replenishment and the capital replenishment should be combined with the improvement of corporate governance and internal management in a bid to effectively guide small and medium-sized banks shift their focus downward, serve the local economic development and support private enterprises and medium, small and micro enterprises. Difficulties and high cost of financing of small and micro enterprises is a prominent problem in the current monetary and financial field and also a focus to dredge the transmission channels of the monetary policy. The issuance policy of differentiated capital instruments helps to further optimize the allocation of resources in the financial system. While providing capital support to the banking system, the dual functions of the financial system and the rational allocation of bank financing can be achieved. 

Since the beginning of this year, banks have continued to replenish capital. In addition to convertible bonds, preferred shares and secondary capital bonds, innovative capital instruments such as perpetual bonds and convertible secondary capital bonds have also been gradually rolled out, providing more capital replenishment instruments for commercial banks. As small and medium-sized banks play an increasingly important role in China's financial system, in recent years, an increasing number of preferable polices to small and medium-sized banks are introduced. At present, large commercial banks and joint-stock banks have issued unfixed term bonds and the innovation of financial instruments is progressive, it is suggested that banks with good qualifications, good internal control and focusing on capital, especially those providing support to small and medium-sized enterprises, can also replenish capital by issuing unfixed term bonds in the future. 

Source | finance.sina.com.cn, www.yicai.com, www.bjnews.com