The extent to which China has been prepared to liberalise its financial sectors - that is, opening sectors to foreign competition and allowing innovation by domestic players - has thus far been a function of the strategic importance of a market and the risk management sophistication of its participants, Moody's Investors Service says in a new report.
Financial markets that are less important strategically and where participants have a higher level of risk management sophistication have experienced a faster and/or earlier opening than other markets, says Mr Michael Taylor, a Moody's managing director and APAC chief credit officer, in the report.
“Liberalisation is likely to gradually extend to additional sectors, including those of greater strategic importance, as the costs associated with maintaining such strong control of markets and extensive support for national players become more apparent,” he said.
Domestic policy objectives could accelerate the opening of some Chinese financial markets, but that China will likely continue its selective, gradual approach to financial market liberalisation.
“Chinese authorities have on the one hand sought to encourage innovation and growth, while on the other influencing the allocation of capital and credit, and promoting the development of strong domestic players,” Mr Taylor said.
China's campaign to reduce financial risk has put a premium on efficient allocation of credit and capital, highlighting the costs of restrictions on more strategically important sectors. However, further financial market liberalisation could increase the credit efficiency and growth potential of the Chinese economy. Specifically, sustained efforts to shift credit to more efficient private businesses in sectors like technology and services could increase overall credit efficiency and return on capital.