Main challenges for the Chinese financial sector
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The world’s second-largest economy is performing a difficult balancing act, attempting to recalibrate its financial sector while seriously welcoming foreign entrants for the first time in history. finews.asia takes a look at the top 5 challenges in 2021.
All over the world, industries are undergoing major structural changes due to a combination of dynamic factors and the financial sector has been no exception.
Technological advancements have uprooted some of the fundamental facets of finance, such as mobile access to banking or digital currency. The health crisis has triggered new practices that could be here to stay, such as remote working conditions or a greater focus on sustainability. Geopolitical tensions are redefining the sources and destinations of global capital.
Few face more disruption and change than China’s financial sector. finews.asia reviews some of the main challenges it will face next year.
1. Bet on yourself
Few people have had a more difficult time in Chinese finance than local banks in 2020. In addition to the initial outbreak, lenders on the mainland were hit by the negative oil price shock in April, which led to a contraction of commodity businesses and investor compensation. In June, senior officials called for the “sacrifice” of profits to support the economy. And all of this is happening against the backdrop of multiple bank rushes, loosening from three state bailouts in 2019 as freshly funded foreign giants enter the market.
2021 will truly test the resilience of balance sheets as the central bank emphasizes a key theme: self-sufficiency.
Both assets and liabilities are under downward pressure. Lending will suffer as regulators call for better risk controls and insist on a new compromised deadline to stop shadow banking – a key source of off-balance sheet lending – by the end of 2021. At the same time, deposit collection is also facing headwinds, in part related to the restriction of fintech participation in the financial system (see page 2) tightening up against products to attract capital and capping banking partnerships. A recent report from the Bank of China forecasts profit growth of 2-3% for the mainland banking sector next year.