Internet finance is altering the landscape of China's financial sector in a dramatic and unprecedented way. (CHINA DAILY)

 

 

Internet finance, an increasingly hot sector, is likely to become the main driving force of the “new normal” for China’s economy, said Li Yang, vice president of the Chinese Academy of Social Sciences (CASS) at the Fourth Economy and Wealth Forum in Peking University on Dec. 7.

 

The “new normal” is a phrase adopted by Chinese President Xi Jinping to describe the latest growth strategy based on domestic consumption and slower expansion.

 

Li pointed out that the international community, especially the developed economies, is taking advantage of the Internet in financial development, but in China, the transformation of the traditional financial industry has yet to occur.

 

“The overheating of Internet finance is attributed to a distorted financial structure and tight financial regulations,” Li said.

 

Given the challenge Internet finance faces, Li suggested that China should carry forward the marketization reform of interest rates while developing direct financing within the framework of the mixed operation of banking institutions.

 

However, China’s interest rate marketization must be realized through repeated and large-scale trading. In addition, it should not simply focus on bank lending and deposit rates, but rather it should work on promoting financial products and making improvements to the framework of the central bank’s regulations, Li continued.

 

Sun Qixiang, dean of the School of Economics at Peking University, said that the “new normal” has three key characteristics. First, it means the Chinese economy has entered a new phase in which economic growth has slowed slightly relative to the breakneck speed of previous years.

 

Second, the economic structure will undergo comprehensive and fundamental changes. The service industry will gradually become the backbone of the national economy, and domestic consumption will be the main source of demand. The gap between urban and rural areas will gradually shrink, and people’s incomes will account for a larger share of the national economy.

 

Third, the economy will transite from a model driven by production and investment to one driven by innovation.

 

Sun said in order for China to better meet the challenges of the “new normal,” we must bear in mind the big picture of the economic, social and political international environment, including globalization, information technology, financial reform, population aging and other risks.

 

Yang Kaisheng, a special advisor to China Banking Regulatory Commission, said that during the process of steady growth, extra attention should be given to the problem of over-production and excessive credit.

 

The Chinese version appeared in Chinese Social Sciences Today, No. 680, Dec.10, 2014      

The Chinese link is: http://www.cssn.cn/ddzg/2013xsdt/201412/t20141210_1436329.shtml

 

 

 

 

 

 

Translated by Yang Xue

Revised by Justin Ward