Three-quarters of 2024 have already passed, and financial professionals are feeling somewhat disheartened.
Let's discuss a few hot topics and engage in some collective reflection.
1.
Everything has a cycle, and the financial industry is no exception.
The financial sector is closely linked to the real economy, serving it while also being subordinate to it.
Currently, China's economy is facing dual pressures of slowing growth and structural adjustments.
Therefore, it is inevitable that the financial industry's growth will slow down.
Especially against the backdrop of rapid expansion in previous years, the number of financial institutions has increased significantly, leading to oversupply and the necessity of reducing capacity.
According to the list of banking financial institutions disclosed by the National Financial Regulatory Administration, by the end of 2023, the number of rural and township banks exceeded 1,600, accounting for more than one-third of all banking financial institutions.
Some institutions are not operating in a standardized manner and are blindly expanding, exposing many risks.
Instead of supporting the real economy, they have spread financial risks to the entire society, wasting a huge amount of social resources.
The current supply-side reform in finance is inevitably accompanied by growing pains.
Shifting from growing bigger to growing stronger, from focusing on quantity to focusing on quality, requires time and patience.
2.
The financial industry needs to return to its "original intention."
Apart from the reasons of economic cycles, the difficulties faced by the financial industry also have their own causes.
The core issue is that some institutions have forgotten their "original intention" in the process of blind expansion, with "customer-centric" becoming just a slogan.
The core value of finance is the ability to price risk and match funds with assets.
However, some financial institutions are too short-sighted in product design, pricing, and internal assessment and incentive systems, pursuing their own scale and profit expansion without putting the interests of customers first.
For example, some entrepreneurs in the early stage were irrational, blindly diversifying their operations after accumulating some capital.
Some financial institutions not only failed to identify and control risks but also exacerbated the situation, creating a mess.
The Evergrande case is very typical, with many financial institutions suffering severe losses, which is regrettable.
The retail credit sector has similar situations, with some institutions lending to people who are not suitable for loans, leading to many social problems and disputes.
In addition, over the past few years, public funds have risen strongly, and investors have experienced a shift from pursuing funds to avoiding them.
Although there are reasons inherent in the cycle, some fund companies have been "sales-oriented," focusing too much on scale expansion to earn more management fees.
At market highs, to cater to investors' blind mentality of "chasing rises and killing falls," they still issue products on a large scale, knowing that "it's easy to sell but hard to do well," ultimately leading to customers being "stuck at high levels" with a poor sense of gain.
Meanwhile, fund companies enjoy high management fees.
It is not unreasonable for public opinion to criticize or even blame the public fund industry.
These are all worth reflecting on for those in the industry.
"Customer-centric" must be implemented and made real.
3.
Financial system construction should place more emphasis on direct financing and establish a multi-level capital market.
Finance solves the problem of value and income distribution between different times and spaces.
A healthy and effective financial market can effectively allocate and utilize resources.
However, China is still mainly based on indirect financing.
Indirect financing is not suitable for all companies.
For start-ups, which have just started and lack collateral and effective guarantee measures, relying on bank loans is likely to be a lose-lose situation.
Enterprises are unable to repay debts, and the non-performing loan rate of banks will also rise.
The function of financial intermediaries is to match funds of various types and risk preferences to suitable assets, and banks cannot cover everything.
China is currently vigorously promoting the development of new quality productive forces and needs to develop direct financing.
Silicon Valley has become the birthplace of global innovation, and Apple, Google, and Tesla have become great companies, all with the help of venture capital.
From the perspective of the corporate life cycle, especially for new quality productive forces represented by high-tech enterprises, the initial risk is high, and the failure rate is high.
At this time, equity investment with a higher risk preference is needed to share risks and benefits with the enterprise.
When the enterprise enters the mature stage, it needs the support of bank credit.
Bank loans do not dilute the equity of original shareholders and also have advantages such as flexibility, low cost, and rapid acquisition.
Subsequently, if the enterprise chooses to go public and continue to grow stronger, it needs the assistance of securities firms.
4.
The financial industry must respect the rule of law, professionalism, and the spirit of contract.
Financial risks naturally have the characteristics of concealment, lag, and spillover, and the requirements for risk management are very high.
Market participants are people, and human nature is inherently greedy and irrational.
Financial risk management involves the entanglement of professionalism and human nature, which is relatively complex.
In an unconstrained market, it is easy for predecessors to earn profits while successors bear risks.
Therefore, finance must rely on the rule of law, not on human governance.
It must rely on professionalism, not on feelings.
It must rely on the spirit of contract, not on personal relationships.
Define the market bottom line through the rule of law, pursue the value limit through professionalism, and ensure the smooth operation of the system through the spirit of contract.
5.
Finance is crucial for the development of new quality productive forces.
Some people say that finance is a virtual economy, not a real economy, and cannot truly promote economic growth and industrial upgrading.
However, the softest thing in the world can gallop through the hardest thing in the world.
The seemingly "virtual" finance is closely related to the very "real" new quality productive forces.
According to data from the General Administration of Customs, as of 2023, China's exports of new energy vehicles, lithium batteries, and solar cells have reached 1.06 trillion yuan, breaking through the trillion yuan mark for the first time.
Behind the "new three" are the values reflected by finance.
In the initial stage from nothing to something, there is the care of venture capital.
In the development stage from something to better, there is the support of bank loans.
In the takeoff stage of growing bigger and stronger, after being assisted by securities firms to go public, it gains more support from the capital market.
The "new three" truly rely on the dual forces of "entity + finance" to stand firm in the global competition.
China must develop new quality productive forces and inevitably needs a strong financial system to support it.
6.
The ability to work hard and earn more is a very sensitive topic in the financial industry at present.
In the past few years, the financial industry has been judged by "scale," and some practitioners who have no ability and no contribution have obtained high salaries by being bold or even through crooked ways.
They are complacent and extravagant.
This has indeed caused a bad social impact and needs to be severely punished.
After the market has been rectified, will the financial industry no longer be associated with high salaries?
In traditional cognition, those who can work hard should also earn more.
Therefore, our focus should not be on the level of salary, but on ability, effort, and contribution.
Finance is not only the lifeblood of the national economy but also an important part of the country's core competitiveness.
Financial institutions play an extremely important role in risk pricing and resource allocation.
Therefore, the requirements for the professional skills and moral quality of financial practitioners are relatively high, and it is reasonable to give appropriate high salaries.
Of course, high salaries are not without a ceiling and should be regulated.
High salaries are even more in need of a scientific and rigorous compensation incentive system for regulation.
The other side of high salaries must demand high ability + high contribution, and both martial arts and war achievements are indispensable.
However, as mentioned earlier, the financial industry is so special that how to judge martial arts and how to quantify war achievements are crucial.
Otherwise, it is very likely to cause incorrect incentives and breed moral risks.
Therefore, the compensation incentives for financial practitioners need to be constrained by internal assessment + corporate governance + external supervision.
Ensure that compensation is matched with individual ability and contribution.
From a global perspective, all economic powers are without exception financial powers.
China has been reforming and opening up for more than 30 years, and its rapid economic growth is inseparable from the support of finance.
However, the importance of finance should not only be reflected in the quantitative contribution to GDP but also in the qualitative contribution.
We have entered a new era of pursuing high-quality development, and we should not only look at immediate gains and losses but also pay attention to long-term value.
Especially in the painful period of transformation, we must resolutely abandon the blind pursuit of scale, adhere to "customer-centric," do a good job in risk management, and effectively allocate resources.
This is how the value of the financial industry and financial practitioners can truly be realized.
A scholar cannot be without ambition and perseverance, for his mission is heavy and his journey is long!
The financial industry needs to refuel!
