China Focus: China makes gains, faces hurdles in extending financial services

BOAO, Hainan, March 24 (Xinhua) — By removing systematic blocks and adopting new technology, China will be able to expand access to financial services to all people, according to experts at the Boao Forum conference.

Recent changes by China’s rural and private financial institutions will help relieve obstacles to inclusive finance, which have held back the nation’s anti-poverty efforts, according to experts at the 2016 Annual Conference of the Boao Forum for Asia, held in China’s island province of Hainan.

INCLUSIVE FINANCE IN THE SPOTLIGHT

With a bad loan rate of 88.3 percent, Hainan Rural Credit Union, a rural credit cooperative in Hainan, was on the verge of collapse in 2007. Over the past nine years, the cooperative has focused on rural microcredit, lending a total of 23 billion yuan (about 3.5 billion U.S. dollars) to Hainan’s 600,000 rural households. The non-performing loan rate has dropped to less than 2 percent.

Thanks to financial education and agricultural training provided to borrowers, Wu Weixiong, board chairman of Hainan Rural Credit Union, isn’t worried about the 23 billion yuan in loans his cooperative has made to the island’s rural population.

“Our staff are experts in both finance and agriculture, which enables them to help farmers acquire necessary knowledge and techniques to make a living and pay back the loan,” he told attendees at the “Inclusive Finance” Boao sub-forum.

Private financial institutions are also making financial services much more accessible to people who are underserved by traditional banks. Ant Financial, a financial arm established last June by the E-commerce giant Alibaba, has lent a total of 45 billion yuan to farmers, online merchants, restaurant owners and mom-and-pop stores, extending loans to 800,000 borrowers who have trouble accessing financial services.

Despite the efforts, a large proportion of the population still lacks access to financing, according to the experts.

NOT ALL HAVE ACCESS

“The core of the problem is that inclusive financing is badly needed by rural people,” said Dong Wenbiao, board chairman of China Minsheng Investment Corp. Ltd., the nation’s largest private equity firm.

The nation still has 55.75 million impoverished people in rural areas, official statistics showed.

Dong blamed “serious systematic deficiency” for the problem, saying that China’s existing financial establishments, including the banking and insurance systems, don’t support expanding access to finance. Large banks are inclined to lend to big companies with lower risk.

The lack of an individual credit system, high operational costs and risks, and the absence of an information-sharing mechanism have all worsened the situation, according to Li Yang, vice director of the Chinese Academy of Social Sciences.

Inclusive finance will play a key role in China’s goal of building a “well-off society” by 2020. The nation’s financial industry should make itself available to all people, said Wu Xiaoling, vice chairwoman of the Financial and Economic Committee of the National People’s Congress and former vice governor of the central bank.

More than 50 countries have set formal targets and goals for inclusive finance in recent years, indicating growing global recognition that access to financial services plays a critical role in reducing extreme poverty, boosting shared prosperity, and supporting sustainable development.

SYSTEMATIC REFORMS

To clear hurdles, the State Council in January released the 2016-2020 Plan on the Development of Inclusive Finance, China’s first national strategic plan on financial inclusion. It targeted building inclusive financial service and security systems that provide reasonably-priced, convenient and secure services to small companies, farmers, low-income urban households, the poor, the disabled and the elderly. It vowed to boost inclusive finance’s development to a level comparable to the global average by 2020.

The government also reiterated in a report in March the development of inclusive finance to increase services for micro, small, and medium-sized businesses as well as for rural areas.

“To tackle the issue, systematic reforms are required,” said Dong, suggesting that farmers should be endowed with land rights that can be viewed as assets when obtaining loans.

Ellen Richey, vice chairwoman of Risk and Public Policy at Visa Inc., said that China already has an advantage in fostering inclusive finance, as 79 percent of its residents have financial accounts, much higher than most countries. But account holders generally only use them for basic banking services or use them infrequently.

“The challenge to inclusive finance in China is not necessarily to get someone an account, but to give them an efficient way to use it,” she said, adding that electronic payment and mobile phones will enable China to bypass expensive investment in infrastructure, such as terminals and telecommunications.

Former New Zealand Prime Minister Jenny Shipley called on lenders to form trust relationships based on human potential, rather than just looking at assets. Shipley said that micro-finance requires collaboration between multiple players, including governments, financial institutions and NGOs.  Enditem

Commentary: Lancang-Mekong cooperation offers new opportunities

   BEIJING, March 23 (Xinhua) — The first leaders’ meeting of the Lancang-Mekong Cooperation mechanism (LMC) in Sanya, China, is expected to provide political guidance and a roadmap for subregional cooperation between China and the five Southeast Asian nations of Cambodia, Laos, Myanmar, Thailand and Vietnam.

The LMC mechanism was initiated in 2014 in accordance with the strong will of the six countries along the river for development and prosperity.

The LMC is a self-initiative of the six countries and is tailored to their specific needs.

Compared with other cooperation mechanisms, the LMC is more practical, more effective and more in line with people’s aspirations.

With the step-by-step implementation of the LMC mechanism, one-day rail travel along the Lancang-Mekong region will become reality as lines of the Pan-Asia Railway network are under construction.

The mechanism will not only facilitate the movement of people and goods between those countries, but also speed up the region’s development as a whole.

Since the LMC mechanism was proposed by Chinese Premier Li Keqiang in November 2014, three meetings of senior officials, three meetings of the working teams, as well as a foreign ministers’ meeting have been held to launch the dialogue and cooperation. Agreement has been reached on 78 early-harvest projects covering water resource management, poverty alleviation, public health, infrastructure, personnel exchanges, science and technology.

The LMC mechanism has three pillars — political and security issues, economic affairs and sustainable development, and social affairs and people-to-people exchanges.

With consensus and strong will of the six countries, the LMC mechanism is showing tremendous potential.

Apart from the six countries, the LMC mechanism is also conducive to the strengthening of cooperation between China and the Association of Southeast Asian Nations (ASEAN) and lend a helping hand to the regional bloc’s integration.

“The Lancang-Mekong Cooperation mechanism comes as a natural result of our existing cooperation, and will take full advantage of our geographic proximity, traditional friendship and complementary economies,” Li told the Sanya meeting on Wednesday.

Li said China firmly supports ASEAN’s integration and the LMC will supplement China-ASEAN relations.  Enditem

 

Spotlight: China’s economic transition set to boost Asian integration despite slower trade growth

   BOAO, March 22 (Xinhua) — Regional economic integration in Asia is expected to deepen further as China moves up the international value chain despite weakening trade growth, experts who follow China’s ongoing economic transition said on Tuesday.

“China’s growing importance in the value chain will inevitably influence its economic and trade structures with these major economies (in Asia),” said Chen Lan, director of Deloitte Research at Deloitte China, in a report for the ongoing Boao Foroum for Asia in Hainan, China.

The report said that China’s future industrial upgrade through innovation will enhance its position in the global value chain as rising production costs and labor costs in the country may weaken its position as the “world’s factory.”

“Despite slowed economic growth during the 13th Five-Year Plan, China still remains one of the most important global consumer markets,” Chen wrote.

China is now in the middle of a painstaking transition from growth driven by investment and exports to growth led by consumption and the services sector. The official economic forecast for this year is between 6.5 percent and 7 percent, much slower than the wildly high growth rates of over 10 percent per annum a few years ago. Last year the economy grew by 6.9 percent.

China aims to double its per capita gross domestic product (GDP) by 2020 compared to 2010, a target that will catapult the world’ s most populous country to the status of a relatively well-off society.

Speaking at a press conference in Boao on Tuesday, Justin Yifu Lin, former chief economist of the World Bank, said that he expects China’ s economic growth to average around 6.5 percent over the next five years. Coupled with the expected appreciation of the yuan, this would mean China’ s per capita GDP is likely to cross the mark of 12,000 U.S. dollars at around 2020.

Lin said the Chinese economy remains vigorous as China targets more sustainable and inclusive growth. According to a new index unveiled by his team to measure the inclusive structural transformation of different economies, China has a score that is among the highest worldwide. The index is based on the New Structural Economics advocated by Lin, who believes that structural changes are the foundation of sustained and inclusive growth along the path to development.

Experts at the forum highlighted the slowdown in world trade growth as a challenge for Asia. A report commissioned for the forum by a team led by Lin Guijun, a scholar from China’s University of International Business and Economics, said that growth in Asia’s merchandise trade has slowed in the aftermath of the global financial crisis since 2008 as world trade growth also slowed. Ditto for global GDP growth, a situation that has not been seen in decades, though trade growth in Asia remains far more robust than that of the rest of the world.

China is now the world’s leading trader and occupies a key position in the international value chain as a manufacturing hub. It is a top trading partner for major economies including Japan, South Korea and the Association of Southeast Asian Nations (ASEAN) and has inked free trade agreements with the latter two.

Lin Guijun said that Asian economies have now placed more importance on the region’ s services as global services grow quickly and investment flows increase.

More than 80 percent of the service-related free trade agreements signed by Asian countries focus on internal liberalizations, he said.

China has promised to further open up its economy while pursuing more sustainable and inclusive growth. It is relying on the services sector to get the medium-high growth it needs to achieve the important milestones in its economic development by 2020.

Chen said economic integration in Asia is set to deepen further as China keeps steadfast to the principle of opening-up, with initiatives like the Belt and Road Initiative helping to open up China’s hinterlands through trade links covering land and sea.

This will help drive infrastructure demand from ASEAN members and in turn boost their economic development. While there are risks to the economy like the spreading of financial market volatilities, China’ s promotion in the global value chain has provided new growth opportunities for industries in regional countries like Indonesia, especially in the textile industry.

Chen said the degree of economic integration among China, Japan, South Korea and members of ASEAN has increased since China’ s accession to the World Trade Organization in 2001, with stronger correlation unfolding between industries, within industries, and between manufacturing and delivery.

She also said mutual investment between China and ASEAN is now growing fast and so too is the demand for yuan clearing. Chinese banks like the Industrial and Commercial Bank of China have established clearing banks in countries in the region.  Enditem

Interview: Russian Far East official expects more Chinese investment

VLADIVOSTOK, Russia, March 23 (Xinhua) — The Primorsky region in the Russian Far East will see more Chinese investment, said Vladimir Miklushevsky, the region’s governor.

More than half of the foreign trade turnover of Primorsky is connected with Northeast China, Miklushevsky told Xinhua.

“We are now working with 200 Chinese companies investing in agriculture, manufacturing as well as trade. And we’re very excited to increase this investment flow.”

He noted that projects in the priority areas of farm products, logistics, industrial and food production have already started in the region.

The governor said investors can enjoy a number of tax benefits in those sectors and in the meantime, foreign investment will bring benefits to local residents.

Miklushevsky also said cultural, scientific and educational ties is the basis for economic trade relations between the two nations.

Despite global financial woes and Russia’s economic difficulties, new opportunities are emerging for the region’s ties with China, he said.

“A huge influx of Chinese tourists visited Primorsky. In 2015, the number of Chinese tourists doubled compared with the previous years, and our tourist income increased 30 percent,” said Miklushevsky.

The governor said authorities are preparing for this year’s East Russia Economic Forum scheduled for Sept. 6-7.

“The first forum had a great success, and the Chinese delegation was the largest and the most active one. They showed great interest toward Russia,” he added.  Enditem

 

China will maintain medium-high growth: premier

  BOAO, Hainan, March 24 (Xinhua) — Chinese Premier Li Keqiang said on Thursday that China will follow a medium-high track of growth and pay attention to the quality and benefits of development.

The premier said this at the opening ceremony of the 2016 Boao Forum for Asia (BFA) held in the southern province of Hainan.

Li said the nation will endeavor to maintain medium-high growth in the long term and promote the development toward the medium-high end.

The theme for this year’s conference is “Asia’s New Future: New Dynamics and New Vision.”  Enditem

China announces detailed rules on VAT reform

   BEIJING, March 25 (Xinhua) — China’s financial and taxation authorities announced Thursday a set of detailed rules on VAT reform.

Starting from May 1, VAT of 5 percent will be levied on homes if they are resold less than two years after purchases, according to a joint statement from the Ministry of Finance and the State Administration of Taxation.

Those sold after the two-year window are exempt from the levy.

Currently, homes that are sold less than five years after they were purchased are subject to a 5 percent business tax.

As of April 8, a tariff, VAT and consumption tax will be applied to  imported items sold by cross-border e-commerce companies, to support the healthy development of the industry, the statement said.

The current tax rate on most imported products sold by e-commerce firms is 10 percent.

A business tax-to-VAT pilot began in 2012 and has been gradually expanded. It had reduced the tax burden of enterprises, most of which are small companies, by 641.2 billion yuan by the end of 2015. Enditem