CF40 Invited Guest
Deputy Governor, the People’s Bank of China
Abstract: Since the outbreak of the pandemic, digital economy has been playing an indispensible role in reviving the economy and supporting employment stability, and has become a new feature and advantage of China’s economic development. As the potential of digital technology is fully unleashed and thoroughly infiltrates every financial field, financial development is ushering in an historical period of opportunities. The new missions that digital economy entrusted the financial industry need to be properly accomplished, which include encouraging digital finance to take root in the real economy, expediting financial digital transformation in an all-round manner, vigorously promoting the development of digital financial inclusion and coordinating the financial tasks for the construction of new infrastructure.
I shall offer three points on the topic of “post-pandemic digital economy and finance” for your reference.
I. Accurately Judge of the New Development Trend of Digital Economy
Since the 18th National Congress of the Communist Party of China, the Xi Jinping Administration has set sight on the future and complied with the prevailing trend with the strategic decisions of strengthening the digital economy and building a digital China. Currently, digital economy is riding the tailwind and drawing all the attention with its performance. The new digital business model has quickly “stepped in”, particularly following the outbreak of the COVID-19 pandemic. It plays an irreplaceable role in hedging against industry pressure, reviving the economy and supporting employment stability. It may be said that digital economy has become a new feature and advantage of China’s economic development.
Firstly, data elements stimulate the real economy. Data elements are the basic strategic resources in the age of digital economy and a key driver in innovative socioeconomic development. In terms of resource allocation, the effective integration and the extensive use of data elements have mitigated the issue of information asymmetry among different social entities such as the government, enterprises, research institutions and consumers. This leads to more accurate allocation of key market resources such as capital, labour and technology to key areas and weaker links of socioeconomic development, which in turn further stimulates the development of the real economy. The orderly flow and thorough integration of data elements in public-service fields such as administration, transport and finance encourage the sharing of government-administrative information and the recreation of administrative processes, so the data instead of the public may do all the legwork and the “last kilometre” of public services may be connected. When it comes to digital governance, the efficient gathering of data elements from different departments and fields effectively supports government management and social affairs in terms of trend study in advance, concurrent decision-making and subsequent evaluation and feedback, thus propelling social governance to new heights.
Secondly, digital innovation has become the driver for industrial upgrade. As digital technology becomes extensively developed and widely applied, digital innovation is profoundly changing the production and operation means and the overall structure of traditional businesses, and has become a key accelerator in the connection between and the transition from old to new drivers. From the production perspective, digital innovation clears the supply and demand communication channels. With the help of means such as agile development, grayscale release and DevOps, the production means of traditional industries have been overturned. The research and development cycles have been reduced and the demand-response speed increased, thus achieving “cellular level” connection of the supply and demand sides. From the brand-marketing perspective, digital innovation overcomes the limitations of traditional media and communication. The wide connection and blanket coverage of the Internet and mobile media platforms have achieved precise, personalised and diverse product marketing and enhanced the depth and width of brand communication. From the ecological-improvement perspective, digital innovation is embedded in and has infiltrated every socioeconomic field. It has profoundly changed the models of technological breakthrough, business collaboration and value communication of traditional industries. Furthermore, it has driven the upgrade of industry supply chains from being “a linear chain” to “a network of ecological systems”, which plays a critical role in the promotion of sustainable development.
Thirdly, digital collaboration has created new engines for economic development. In recent years, China has continued to strengthen high-level dialogues in the digital field, so as to encourage the development of the digital Silk Road of the 21st century and to continuously expand the circle of digital collaboration. In 2019, China’s digital import and export trade reached USD203.6 billion, accounting for 26% of the total national service trade. It may be said that digital collaboration has become a major force that drives high-quality economic development. To the producers, digital collaboration effectively reduces the cost of existing value chains and encourages the development of new value chains and ecospheres. More market entities are thus able to take part in global trade, while upstream and downstream businesses along the industry chain become more closely connected and enjoy smoother cooperation, which significantly enhance the operational efficiency of the global economy. To the consumers, digital collaboration features intensification and platforms while having no boundary, which allow effective expansion of service channels, diversification of product types and optimisation of client experience. It taps into the potential of consumption demand and gradually creates a positive cycle of good quality and prices, so that digital bonus becomes more widely available.
II. Firmly Seize the New Opportunities of Digital Financial Development
Like the relationship between economy and finance, digital economy is the body and digital finance is the blood vessels – they exist and thrive together. As digital economy rises and flourishes, the potential of digital technology is fully unleashed and thoroughly infiltrates every financial field, causing profound changes in the business formats of finance and empowering financial digitisation to enter a new stage. Financial development is ushering in a historical period of opportunities.
Firstly, the new pattern calls for high-quality financial development. President Xi Jinping demanded the gradual establishment of a “dual-circulation” development pattern, in which the domestic economic cycle plays a leading role while the international economic cycle serves its extension and supplement. The key to the development of the domestic economic cycle lies in the smooth supply and demand circulation and the release of internal forces. The financial industry needs to undergo thorough digitisation and independent innovation, with technological innovation driving the qualitative growth, so as to help enterprises, particularly micro and small enterprises, better connect to the domestic economic cycle. The smooth “dual-circulation” development relies on high-standard bilateral opening up and requires the financial industry to place equal focus on the strategies of “attracting foreign resources” and “going global”. Meanwhile, international digital collaboration needs to be intensified3, so as to promote the integrated development of the domestic and foreign financial markets and the efficient gathering and reasonable flow of key financial elements.
Secondly, the new economy has induced digital financing models. Currently, China’s economic development is showing the characteristics of total-factor digitisation, and the new economy as represented by digital economy is exhibiting strong resilience and vitality. Modern technology is quickly infiltrating traditional industries through different dimensions, levels and chains and is continuously inducing new financing models. This requires the financial industry to achieve the digitisation of business assets, provided the transparency of the assets and their fair and just value are guaranteed, and relax control of mortgage financing for micro, small and medium-sized enterprises. Meanwhile, modern risk-control mechanisms and operation means need to be adopted, and the effectiveness and accuracy of the pricing of current and intangible assets enhanced, so as to introduce new financing schemes to market entities and achieve targeted revitalisation.
Thirdly, new demands drive the diversification of financial services. The world is currently undergoing unprecedented momentous changes, and the profound changes at home and abroad are impacting the supply and demand of financial services. The pandemic has triggered the drastic rise in the demand for contactless financial services. Global economic and trade cooperation urgently requires integrated cross-border financial services that are user friendly and highly efficient, while the wider public are calling for more personal financial services and experience as they long for a better life. The development of digital finance will facilitate financial services to become more diverse and user friendly, which will expedite the adjustment of the economic structure and the upgrade of consumption quality and comprehensively boost the competitiveness of the financial market.
Fourthly, new technology propels smart financial innovation. In recent years, emerging technologies such as ego computing, smart chips and 5G + the Internet of Things have developed by leaps and bounds, and provided foundational support to smart financial innovation in dimensions such as computing power, algorithm, storage and networks. They provide a solid foundation for the rapid advancement towards a smart financial industry and propel the introduction of innovative applications such as smart payment, smart networks and smart investment advisors. It may be predicted that as smart finance that provides external support moves inward to drive changes, it will evolve from empowerment to enablement and capacity, which will sure to become a new growth pole for financial innovation.
III. Properly Accomplish the New Missions that Digital Economy Entrusted the Financial Industry
As a key component of the digital economy, digital finance is an internal requirement for high-quality economic development and an honour bestowed upon the financial industry in the new era. We must thoroughly implement the decisions and deployment of the Central Committee of the Chinese Communist Party and the State Council, and step up the building of a modern financial system suited for the development of a digital economy. The strategic resources of data need to be seized and scientifically and logically applied in order to provide all-round financial support to the creation of a new development pattern.
Firstly, encourage digital finance to take root in the real economy. Digital finance is a product of the in-depth integration of digital technology and the financial industry, and its fundamental financial attributes remain unchanged. The real economy is a fertile ground for the development of digital finance, which may only survive and thrive when rooted in the real economy. The financial industry must actively adopt digital technology to propel the transformation and innovation of traditional finance. It must create a closed digital ecological loop of “industry economy + financial services”, so as to empower the all-round development of the real economy and continuously strengthen new models, business formats and industries. Efforts need to be made to address the issue of information asymmetry, make industry chains transparent and digitise the underlying assets of businesses. The credit value of micro and small enterprises needs to be uncovered and the risk cost of financial services reduced, in addition to effectively increasing the supply of financial products and services to the real economy. Achieve the automatic review and granting of loans in batches with the help of digital technology, and increase the availability and intelligentisation of credit financing. Guide funds from overcapacity industries with high pollution and energy consumption to emerging industries with high technology and added value, while expediting the improvement of the industrial ecosystem of the real economy, so as to achieve targeted revitalisation of the real economy with the help of finance.
Secondly, comprehensively expedite financial digitisation. Digitisation is an urgent requirement for the enhancement of the quality and efficiency of financial services, and it compensates for the shortcomings of traditional business activity. It is also key to the development of digital finance and the transition to new drivers. Financial industry must seize digitisation as the breakthrough point for the supply-side structural reform in finance and thoroughly implement new development ideas and develop digital thinking. It needs to incorporate its own advantages when formulating strategies for differentiated and distinctive development and establish systems and mechanisms that are adapted to digital development. It also needs to understand the advantages and disadvantages of emerging technology to foster strengths and circumvent weaknesses. Work related to model selection and task tackling, capacity development and scenario promotion must be coordinated, with digital elements being introduced to the complete process and field of financial activity on the premise of the risks being controllable. It must be noted that financial institutions need to intensify the application of data resources and give full play to the multiplication effects of data elements. Internally, control and management need to be stepped up, and data governance must be incorporated into the mid- and long-term development plans of businesses. Data should be graded by taking into account factors such as national security, public rights, personal privacy and corporate legal rights, with differential measures applied to different data. Externally, data ownership needs to be defined and the cross-institution and -field integrated data-application mechanisms perfected, so as to achieve the regulated sharing and efficient application of data. In terms of data security, technology such as secure multi-party computation and homomorphic encryption needs to be adopted to achieve the obfuscation of key information, separated storage of related information and encrypted end-to-end data transmission, so as to ensure the data are usable but invisible. A great amount of data in the end belong to the users.
Thirdly, vigorously promote the development of digital financial inclusion. Digital financial inclusion is highly significant in winning the battle of poverty alleviation and reviving the rural economy. Financial industry needs to strengthen the strategic planning for digital financial inclusion, promote the development of related legal systems and step up investment in scientific and technological innovation and the transformation of scientific and technological achievements. It needs to focus on issues and demands while taking advantage of science and technology to create a digital financial-inclusion service system that is tolerant, inclusive, equal, open and sustainable. Addressing the issue of “digital chasm” plaguing particular groups such as the elderly, the impoverished and the marginalised, financial apps with larger fonts, audio version and simplified version need to be introduced. Meanwhile, contactless-service experience and processes need to be optimised, and the user friendliness and security of financial products improved, so more people may enjoy the achievements of scientific and technological development. The basic knowledge of financial and scientific and technological integration should be actively popularised, and consumers’ risk awareness raised. The inclusion of financial knowledge in education should be promoted, so it may become popularised at an early stage, while the financial learning of the public is improved through different measures.
Fourthly, coordinate the financial tasks for the construction of new infrastructure. Financial industry must on the one hand drive the high-quality development of digital financial infrastructure, while on the other hand provide financial support to the construction of new infrastructure, thus fully contributing to the construction of new infrastructure. Internally, financial-data centres with advanced facilities, extensive information and efficient services need to actively developed, while the creation of disaster-recovery systems for the financial industry expedited. The transition of traditional technological frameworks towards being open and distributed should be promoted, in order to provide a solid “digital base” for financial services. Industry-wise, credit models need to be optimised based on the funding demands of new-infrastructure construction. Instruments of the capital market may be increased through means such as debt and equity, supply-chain finance and “intelligence + fund raising”, so the industry chain serving new-infrastructure construction may be extended, and more social capital may be encouraged to invest in new-infrastructure construction.
As the reform and innovation pioneer in China’s financial industry and the pinnacle of bilateral opening up, Shanghai’s financial market has a sound system with all the key elements. It is hoped that Shanghai may firmly seize the new round of opportunities presented by scientific and technological revolution, give full play to its advantages and boldly expand and innovate, as it expedite the creation of a modern financial infrastructure and system for digital economic development. The People’s Bank of China shall support Shanghai in its development of infrastructure such as a national fintech development and research centre and a trade repository for China’s financial market. We will assist Shanghai to find a development path for digital finance with its own characteristics, and provide powerful support for the building of Shanghai’s international financial centre and the integrated development of the Yangtze River Delta.
Standing at the historical crossroad of the “Two Centenaries” goals, the trend of digital economy is unstoppable and the prospects of digital finance boundless. A wise man changes as time and event change. The People’s Bank of China is fully aware of the current and future development of digital economy, and understands the tremendous benefits as well as the risks and challenges that digital finance brings to the economy and people’s livelihood. It is hoped that everyone may set sail and pursue the dreams and advance courageously in the face of trials and tests, so a better future with digital economy and finance may be jointly created.Download PDF at: