“Since 1998, the Chinese economy has entered a new period of growth. The average annual growth rate of the GDP is 7.7 percent, and growth quality has greatly improved,” Wu Jinglian said at the “China’s Finance: Move to Success Forum” held late in February.

Wu delivered a speech entitled “Stability and the Development of China’s Financial System,” noting that the risks in its financial system were now beginning to show.

He illustrated three kinds of financial risk:

First, in the banking industry, where the accumulation of non-performing assets might bring risk to the whole system. Second, the risk from capital markets where if the stock market bubble bursts, it will harm investors and the whole financial sector. Finally, the risk brought about by the instability of a transitional period where the economic and social risk of no social security for the low-salary group will affect up to 100 million people.

To resolve the potential risk of the stock market bubble, he suggested three ideas:

First, there was no point in avoiding the market bubble through executive administration as the speculative market is an important tool of capital allocation. Government regulation doesn't work with the principles of the market.

Second, the reason for fighting against speculative bubbles should be to facilitate transactions and to allow the market to operate freely and equally, such as the example of a “totally-traded stock” problem.

Finally, financial democratization can be achieved through a more ideal social insurance system: the measure helping to prevent the ordinary man from the threat of financial risk.

Wu stressed that for the weak areas, risk-resisting regulations should be changed following the breakdown of the old pattern in this period of change. He said that new risk should be controlled otherwise it would endanger the successful operation of the financial sector and even the stability of society as a whole.

He made the suggestion that financial reform and renovation must be regarded as the primary method to avoid financial risk and the way to maintain the stability of a financial system and the powerful drive of its development.

(China.org.cn by Tang Fuchun, March 4, 2003)