Tu Guangshao on what makes a “Strong Financial Nation” and where China falls short

Former President of China Investment Corporation (CIC) & Executive Vice Mayor of Shanghai says "big" doesn't mean "strong" and China still has a long way to go

At the end of October 2023, China held the Central Financial Work Conference where Xi Jinping announced the goal of building China into a 金融强国 “strong financial nation.”

What is Beijing’s framework for defining and assessing a “strong financial nation”? Where is China falling short? Tu Guangshao, Former President and Vice Chairman of China Investment Corporation (CIC), China's major sovereign wealth fund, and before that, the Executive Vice Mayor of Shanghai, recently gave his answers at the “80 Years after Bretton Woods: Building an International Monetary and Financial System for All” & 2024 Tsinghua PBCSF Global Finance Forum held in Hangzhou on May 27-28, 2024.

My coverage of the forum includes a People’s Bank of China monetary policy advisor‘s observation of the US economy in Pekingnology, and another central bank monetary policy advisor’s proposal for a Chinese Marshall Plan in the Green Economy Era in The East is Read, respectively.

Below is a translation of Tu Guangshao’s speech at the forum, with extensive notes from me at the beginning because…you need it.

His speech is sourced from a Chinese-language transcript provided to me by Tsinghua PBCSF (People’s Bank of China School of Finance), a school within Tsinghua University and the successor to the Graduate School of the People’s Bank of China, the central bank.

First, the key core elements for building a strong financial nation are…We generally understand this as the "Eight Six Six Five Five":

八个坚持 Eight Adherences: These are the overall principles and goals, the general direction and path.

六个核心要素 The First Six: These are the six core elements, including a strong international financial center, forming its basic framework.

六大体系 The Second Six: These are the six major systems, which constitute the overall construction tasks. Building a strong nation involves constructing these six major systems.

五篇大文章 The First Five: These are the five major areas of focus, the critical tasks driving the entire financial system.

The Second Five: This refers to the financial culture that the General Secretary specifically mentioned, representing soft power.

Therefore, I believe it is "Eight Six Six Five Five." This outlines the comprehensive framework for building a strong financial nation.

The Eight Adherences 八个坚持:

1. Adhering to the Centralized and Unified Leadership of the Party Central Committee over Financial Work

2. Adhering to Upholding a People-Centered Value Orientation

3. Adhering to Ensuring that Serving the Real Economy is the Fundamental Purpose of Finance

4. Adhering to Maintaining Risk Prevention and Control as the Eternal Theme of Financial Work

5. Adhering to Promoting Financial Innovation and Development on the Tracks of Marketization and Legalization

6. Adhering to Deepening Structural Reform on the Supply Side of Finance

7. Adhering to Balancing Financial Openness and Security

8. Adhering to the General Principle of Seeking Progress While Maintaining Stability

The First Six - Six Strengths 六个核心要素

1. a strong currency 强大的货币

2. a strong central bank 强大的中央银行

3. strong financial institutions 强大的金融机构

4. strong international financial centers 强大的国际金融中心

5. strong financial regulation 强大的金融监管

6. a strong financial talent pool 强大的金融人才队伍

The Second Six - six major systems 六大体系

1. Financial Macro Control System - Building a Financial Regulation System that Advances Progress While Ensuring Stability 金融调控

2. Financial Market System - Enhancing the Quality and Efficiency of Division of Labor and Collaboration among Financial Institutions 金融市场

3. Financial Institutions System - Optimizing the Structural Layout of Financial Markets 金融机构

4. Financial Regulatory System - Establishing a Comprehensive and Effective Financial Regulatory System 金融监管

5. Financial Products and Services System - Constructing a Diversified and Specialized Financial Service System 金融产品和服务

6. Financial Infrastructure System - Improving the Construction of Financial Infrastructure Systems 金融基础设施

The First Five 五篇大文章: Five major areas of focus

Technology Finance, Green Finance, Inclusive Finance, Pension Finance, and Digital Finance.

The Second Five - 金融文化 Financial Culture

诚实守信，不逾越底线 Honesty and Integrity, Adhering to Boundaries

以义取利，不唯利是图 Profiting with Integrity, Not Driven Solely by Profit

稳健审慎，不急功近利 Prudence and Stability, Avoiding Short-Sighted Gains

守正创新，不脱实向虚 Uphold fundamental principles and break new ground, Avoid being distracted by the fictitious economy from serving the real economy

依法合规，不胡作非为 Lawful Compliance, Avoiding Malpractices

Please note all of these terms are excerpted from Xi Jinping’s remarks at the Central Financial Work Conference in October 2023 and at the opening of a study session for ministers and provincial Party secretaries at the Party School of the CPC Central Committee (National Academy of Governance). If you want a comprehensive version, a compilation of excerpts from his discourses on China's financial sector is available in a book published in March 2024.

Continuing with Tu Guangshao’s speech, uninterrupted from now on

But I believe that in addition to seriously studying the series of discussions by General Secretary on the concept of a strong financial nation and financial work, we must also understand what it means to make the nation "strong" （强大 qiang da, strong and big) in the context of financial power. When we talk about being strong, we seldom say big and strong (大强, big and strong) because it's easy to grow from strong to big, but in that process one must first become strong in order to become big.

However, this does not mean that "big" and "strong" are unrelated. Without a sufficient scale, even the strongest cannot succeed. Strength can lead to becoming big, but being big does not necessarily mean being strong. Being big might mean being bloated with weaknesses, rather than being truly strong, and may even carry many "diseases."

Therefore, I think we need to pay special attention to the three dimensions of becoming a strong financial nation.

First, China’s journey to becoming a strong financial nation must depart from the past path of quantity-driven growth. We must consider both scale and quality, functionality, and shift from quantity-driven growth to quality-led growth. This is the inevitable path to becoming a strong financial nation and a necessary journey for high-quality development.

We all know that the total financial assets of Chinese financial institutions rank among the top globally. For example, the financial market in Shanghai is relatively large, with transaction volumes often being either the first or second in the world. Additionally, consider other indicators; our M2 broad money supply has just exceeded 300 trillion yuan, which is also very large. However, having large quantities does not mean being strong. In some aspects, there is still some hollowness, so we must follow the path from quantity-driven to quality-led development.

Let me give a simple example. We currently have over 5,000 publicly listed companies. I've often mentioned that the U.S., after over 200 years, also has about five or six thousand publicly traded companies. But look at the quality and functionality of those companies. I've always used this example, not to say that our capital market has not developed well—we've done very well over the past 30 years—but there are indeed some issues. Therefore, it's not just about looking at quantity and scale; we must also look at quality and functionality.

Second, we must consider both the financial sector and its external environment. We need to shift from the past internal financial “involution”, where we played within our financial sector, to focus on the real economy. Financial strength is reflected in many strong financial indicators, but what is finance for? Finance is to serve the real economy, to serve economic and social development. Therefore, we must look at finance and also beyond finance, to understand the relationship between finance and the economy. If we do not consider this external relationship, finance cannot truly become strong because it lacks a clear function and purpose of service—the relationship between the economy and finance is not well established.

Third, I believe we need to adjust and change our perspective to consider both domestic and international contexts. When we talk about becoming a strong financial nation, this "strength" must be discussed in a global context, meaning whether we are a strong financial nation globally. Becoming a strong nation requires our own efforts, but it also needs global recognition and evaluation, looking at our influence worldwide.

We have a long way to go, for example, in terms of financial institutions. Although many of our banks are considered "banks of cosmic proportions" and are some of the largest by market value globally and are global systemically important banks, how much international business do they conduct? Our financial market transactions are huge. I am in Shanghai, which is sometimes referred to as an international financial center, but I cannot yet say this is truly an international financial center because the volume of international business is still too small. To date, the participation of international funds and capital in our so-called bond and stock markets is very low, not to mention that China has not yet become a vehicle for allocating global financial assets. What does this mean? It means you are very large, but not strong internationally.

The Renminbi is China’s sovereign currency. A previous speaker just mentioned that we are promoting the internationalization of the Renminbi, but its proportion is still very low. This means that while it is strong domestically, it is not strong internationally, and may even be quite weak. Moreover, we are engaging in institutional openness and need to continuously enhance our influence on global financial systems and governance.

To become a strong financial nation, we must focus our efforts on becoming truly strong, not superficially strong or falsely strong. I believe the task is still very challenging and requires concerted efforts from all sides. That is all I have to say. Please feel free to critique and correct any inaccuracies.

A Chinese Marshall Plan in the Green Economy Era, Huang Yiping suggests