Economists commissioned by HSBC have predicted in a Nov. 6 report that China’s new government will initiate “a swathe of coordinated reforms which we believe will revolutionize the country’s financial system.”
As the Communist Party Congress in Beijing prepares to unveil its next generation of leaders, the economists predict that a financial overhaul will top the policy agenda in coming years. Interest rates will be liberalized, the bond market will be doubled in size and the yuan will become convertible within five years, said Qu Hongbin, Sun Junwei and Ma Xiaoping.
Such changes would boost the private sector by making capital allocation more efficient and providing the middle class with more choice about where to put their money. That would enable households to earn a higher return and therefore spend more, they said.
“This should help rebalance growth from investment to consumption and lift the potential growth rate in coming years,” the HSBC report said.
The report predicted a positive boost to the country’s financial system similar to the UK’s 1986 ‘Big Bang’, when major reforms transformed Britain’s financial services industry into a “global powerhouse”.
It is expected that the People’s Bank of China will create a single benchmark interest rate across bond markets in the next three years, thus allowing for full renminbi convertibility and internationalization.