IIF President Timothy Adams on capital market reform in China
The financial reform is widely regarded as a key ingredient in facilitating China's economic rebalancing, raising household incomes, boosting domestic consumption and reducing the reliance on exports as an engine of growth.
A successful financial reform could also boost free markets and private enterprise, and allow market forces to play a greater role in capital allocation.
Timothy Adams is the current President and CEO of the Institute of International Finance (IIF) and a former Undersecretary for International Affairs at the U.S. Department of the Treasury, where he was the George W. Bush administration's point person on international financial and economic issues. He recently shared with me his takes on the reforms in China's capital markets.
Q: How do you see the reforms in China's capital markets and the yuan convertibility?
A: I focused my comments today specifically about capital markets and the role vibrant capital markets generally, specifically the bond market, the role that it could play in channeling funding for infrastructure and for urbanization while also giving households and individuals new and diversified instruments to invest in, that are safer, again more diversified and offer greater returns.
I think it's very very important to create new channels of funding in addition to the very important banking sector. You have a very vibrant and profitable banking sector, but you also need a parallel to that, a capital market structure that allows for the funding of investment projects, the funding of infrastructure, the funding of urbanization, and also allows savers different kinds of assets to own and invest in, which are safer and less volatile and have higher returns.
It is indeed very important to create new channels of funding in addition to the regular banking sector. The rise of the shadow banking industry is an indication that financial reforms are needed. How to tackle the risks posed by China's massive shadow banking industry? IIF President Timothy Adams will air his opinions in our next episode.