Recently, the Research Center for Finance Security at Tsinghua University Institute for Fintech Research (IFR), released its latest research: A Study on the China’s Financial Security. The report conducts a comprehensive study on China's financial security, analyzes the potential challenges, and proposed specific countermeasures to strengthen the financial security capacity.

Status Quo I: Generally sound and stable

Research shows that despite the potential challenges, stability is the major feature of the China’s financial security. Progress and achievements are steadily made.

Progress and Improvements: In 2020, despite the impact of the COVID-19, and the complicated global and domestic environment, China's financial industry remains sound and stable. Progresses are seen in the financial security industry. The scale of assets and liabilities in the banking and insurance industry is growing steadily. The insurance density and penetration are enhanced. A modern financial system is taking shape, with reasonable division of labor, mutual complementarity and complete functions. A multi-level, wide-coverage and differentiated system structure is formed in the banking sector. The multi-level capital market system has been improving. Moreover, the Beijing Stock Exchange was established on September 2021.Science and Technology Innovation Board in the stock exchange was set up, and a pilot registration system has been implemented. 

Achievements: The efficiency in supporting real economy has obviously improved in finance industry: the monetary policy transmission efficiency is raised; the role of structural monetary policy tools are empowered; the COVID-19 pandemic resilience have increased; financial support assessment and supervision are strengthened; and the vitality of the consumer market is increased. The rising efficiency strengthens the major national strategic financial services, guides financial institutions to supply medium and long-term construction funds, promotes the implementation of major projects, and actively gives play to the role of green finance as an "accelerator" to promote carbon neutrality goals.

Potential Challenges: To cope with COVID-19, some countries have adopted unconventional monetary policies, which may lead to external impacts on China's finance. Moreover, China is still facing long-term domestic challenges. Amid the pandemic, the old and new problems intertwined. The high-risk shadow banks are easy to resurge. The pressure of non-performing assets in the banking industry is suddenly increasing. The capital gap of small and medium-sized financial institutions are revealing. There are still illegal financial institutions and illegal financial activities. The “new normal” risk management mechanism needs to be improved, and the transaction activities of the informal financial system are not effectively restricted. Furthermore, the social credit system is not strong enough. The disciplinary measures for dishonest activities are not in place, and the market transparency needs to be further improved.  Attentions are needed to be highly alert to the monopoly of platform enterprises and disorderly expansion of capital on the market economy system.

Status Quo II: Risks generally under control, but with hidden challenges. 

Meanwhile, the major domestic financial risks including high-risk institutions, shadow banks, and the credit risks, are continuously being constrained. The domestic financial order has been comprehensively restored. Progresses are made in the internet financial risk management, illegal financial activity prevention, risk resolution in private equity fund and financial asset trading places, and the supervision of third-party internet platforms of large financial technology companies. The commercial banks has been significantly enhanced. The international financial risks have also been effectively studied and managed. A solid financial security network provides a strong support for the relief of possible financial risks. 

However, research shows that there are still hidden challenges in illegal activity regulations, technical security and data security. Artificial intelligence, blockchain, cloud computing, big data, Internet of Things, etc. are not well legalized. Data acquisition, application, processing, protection, and cross-border supervision are still exposed to various security risks. Innovations should be encouraged and actions should be taken to protect and utilize data application, strengthen the capacity building of national financial security, and effectively safeguard national financial security.

Along with the development of finance and technology, the financial security becomes more and more important. It is important to strengthen the system building, integrate domestic and external situation, and build a new national financial security network, so as to comprehensively improve the national financial security capability. National credit security, and financial information security must be insured, so as to promote international financial security and global financial security.

The Research Center for Finance Security at Tsinghua University Institute for Financial Research conducts systematic researches with financial security. Basing on big data analysis, the Center focuses on the theoretical research and practical operation of financial security, aiming to build an exchange and cooperation platform for financial security research.

Read More:

A Study on China’s Financial Security.pdf