By Wu Xiaoling, deputy governor of the People's Bank of China and a member of the Standing Committee of National People's Congress
 
Editor's note: This article is based on a June 10 speech by Ms. Wu at an international financial forum in Tianjin.

Financing is as crucial to economic growth as veins are to human health. And improving financial services for business is strategically important. Considering the current environment and the nature of finance, I think three aspects deserve more attention.

Wu Xiaoling

First, stimulating credit lending to corporate and consumer clients will become more important for financial services. Before China's economic reforms began 30 years ago, the planned economy allocated credit lending activities to banks. Although great strides have been made since 1978, China is still dominated by indirect financing. Yet for companies, and particularly for small and medium sized enterprises (SMEs), for whom fund-raising from the stock market and corporate bond sales are difficult, loans have become the only means of capitalization.

The reality is that the credit supply is scarce, and demands cannot always be made. Under the nation's current tightened monetary policy, which is designed to fight inflation, borrowing is difficult. But providing credit lending services to corporate clients is crucial to maintaining the nation's stable economic growth.

My view is that an answer to the problem can be found in enhancing the credit lending roles of non-bank financial institutions. Tight monetary policy would not be disturbed, while microeconomic activities would be strengthened. Loan activities by non-bank institutions would not increase the money supply but would provide alternative and safe financing for SMEs.

Therefore, I am advocating that we study the scope of services offered by non-bank financial institutions, and that we gradually improve relevant rules and regulations with a view to upgrading our financial services.

My second point is to respect property rights for corporate and consumer clients, as well as their independent investment rights. If capital from money lenders and equity investors are not proprietary but involve pubic funds and interests, a certain level of supervision should be put in place with a view to stabilizing the market. Usually in these cases, the money holders are financial institutions.

We should thus differentiate individual investment behavior from financial activities that involve financial services. For the former, we should pay due respect to their independent investment rights, while for the latter, more attention should be paid to protecting public property. Financial development has been limited to a large extent due to a lack of respect for individual investment behavior.

Third, financial services should be aligned with the varying needs of customers. Meanwhile, policy makers should promulgate regulatory policies accordingly.

The booming Chinese economy has created a number of private businesses and consumers who need professional wealth management services. On one hand, serving big capital investors offers huge potential for the development of the Chinese financial sector. On the other, millions of private investors who hold small amounts of capital are relying on financial institutions to handle their money.

Financial institutions should stick to conservative investment portfolios so that small capital holders are not vulnerable to high risks, which could lead to losses than upset social stability. In line with this principle, high risk products should constitute a small portion in investment portfolios.

The state authority should adopt prudent regulatory reviews of financial institutions that serve small capital investors. Meanwhile, protective funds should be established for small investors.

Looking forward, the goal of financial reform is not to unfetter the investment activities of qualified, big money investors but to protect small capital investors. At the same time, strengthening microeconomic financial activities will serve well the needs of both corporate and consumer clients.