China’s financial industry has made remarkable progress in recent years. However, it still has room for improvement in terms of optimizing resource allocation and revitalizing the real economy. There are four measures that could help the financial industry to better serve Chinese real economy.

The fundamental role of finance is to serve the real economy. Finance originates from the real economy’s development needs, while demand boosts financial growth at the same time. Finance aims to reduce invisible transaction costs and risks by setting up an effective financial system, thus improving the efficiency of investment and financing. Practices are a testament to the importance of finance, whose bedrock is the real economy. Finance can only develop in concert with the real economy by constantly serving it, thus promoting its overall healthy development.

Finance will lose its roots and start to irrationally expand if it stops serving the real economy, leading to distorted resource allocation, unhealthy development of the real economy and financial crisis. Therefore, the financial industry should support the real economy and clarify its own function and orientation while strengthening the sense of responsibility and service.

Financial organizations should properly handle the relationship between economic benefits and social responsibility while evaluating performance based on service to the real economy. Also, they should motivate their employees to be more active and creative in serving the real economy while preventing capital from flowing to the virtual economy.

Financial resources should be correctly allocated by adjusting the credit structure of commercial banks. Finance serves the real economy by steering massive amounts of scattered and disordered capital to brick-and-mortar sectors and companies. In the Chinese financial system, social financing activities are mainly supported by credit banks. Capital flow and credit structure of commercial banks, to a great extent, determine the efficiency of finance in serving the real economy.

At present, commercial banks in China should emphasize supply-side structural reform based on revitalization of the real economy and properly lend credit loans. These banks need to collect the idle credit resources of zombie companies and inefficient industries so that they can be reinvested in the real economy, which has greater potential, while conforming to national and regional development strategies. In this way, a more ordered allocation of critical resources is possible, which will promote economic structural adjustment and industrial optimization.

Finance should serve the real economy by promoting manufacturing. The revitalization of the real economy mainly aims to build the country into a leading manufacturer. At this point, Chinese financial organizations should focus on developing advanced manufacturing and supplying financial resources to meet the demand of manufacturing optimization. They need to support technological reform and equipment transformation and facilitate infrastructure construction as well as developing creativities, thus laying the foundation for greater efficiency and helping companies to further upgrade.

It is critical to emphasize financial innovation and develop new products and services. Financial products and services that meet market demand can help finance better serve the real economy. In recent years, China’s financial products and services have made progress but still fail to keep up with the demand of the real economy due to lack of innovation and high degree of homogenization. Such factors have inhibited finance from efficiently serving the real economy.

Financial organizations should strategically innovate to develop new financial products while upgrading the existing ones. In addition to service method innovation and relevant systematic optimization, it is also necessary to make services more accessible and convenient. If possible, financial agencies can set up research centers and develop better products and services. In this way, finance can better serve the real economy with more distinctive and higher-quality products and efficient services.

 

Qiu Zhaoxiang is a professor of finance at the University of International Business and Economics.