Summary of Key Points
At the work meetings in the second half of 2026, both the central bank and the State Administration of Foreign Exchange emphasized "financial reform and opening up" as key priorities. This reflects two critical changes in the current economy: firstly, the domestic economy is experiencing "K-shaped growth," where new drivers such as high technology are growing rapidly, while traditional industries are struggling due to weak domestic demand; secondly, China's relationship with the world has evolved—China is not only exporting products (Made in China) but also investing capital overseas. To support these changes, the financial system needs to be more open and flexible, providing greater freedom for enterprises to conduct cross-border transactions, reducing costs, and avoiding excessive regulation, so that Made in China can compete effectively on the global stage and Chinese capital can flow freely.
Detailed Explanation
Why Are Both the Central Bank and the Administration of Foreign Exchange Focusing on Reform and Opening Up?
The work priorities of the central bank and the administration in the second half of the year are closely aligned, both focusing on advancing financial reform and opening up. This decision is not arbitrary but stems from new economic realities. For instance, there is a clear divergence in the domestic economic structure, with new growth drivers requiring more financial support; at the same time, Chinese enterprises need more convenient cross-border financial services to expand overseas. Therefore, reform and opening up are aimed at making the financial system better suited to these new circumstances, rather than continuing with old practices.
The Current "K-Shaped Growth" Economy: A Divided Landscape Between New Drivers and Traditional Industries
In July, the manufacturing PMI (a measure of industry vitality) dropped to 49.2 (below 50 indicates contraction), but the PMIs for high-tech and equipment manufacturing remained at 53.3 and 51.4 (above 50 indicates expansion), indicating stronger growth. This is like two people running a race—one (new drivers) is moving quickly, while the other (traditional industries) is slowing down due to insufficient domestic demand. In this context, financial policies cannot be one-size-fits-all; they need to provide more support for new drivers, help traditional industries manage risks, and facilitate capital outflows. Reform and opening up are necessary to adjust policies accordingly.
Changes in China's Relationship with the World: From Exporting Products to Exporting Both Products and Capital
Previously, China mainly focused on exporting manufactured goods; now, it is simultaneously exporting products and investing capital overseas. For example, Chinese companies not only sell smartphones and high-speed trains but also invest in foreign countries to build factories and acquire resources. These changes require a more open financial system that allows for the free flow of funds across borders, ensures the stability of exchange rates (to prevent losses during currency fluctuations), and facilitates smoother cross-border transactions.
Specific Actions Required for Financial Reform and Opening Up
Reform and opening up are not just empty slogans but involve concrete measures:
- Facilitate Cross-Border Investment and Financing: Make it easier for companies to invest overseas and for foreign capital to enter China.
- Improve the Offshore RMB Market: Ensure the RMB can be used and repatriated abroad more conveniently.
- Manage Exchange Rate Risks: Provide tools to help companies hedge against exchange rate fluctuations.
- Open Up the Capital Account: Allow for freer capital flows between domestic and international markets while establishing safeguards to prevent external shocks from affecting the domestic economy.
The goal of these measures is to reduce the costs associated with cross-border transactions, making it easier for Made in China to compete globally and for Chinese capital to flow effectively.
The Direction of Reform Cannot Be Misled: Focus on Giving Enterprises Freedom, Not Excessive Regulation
The news highlights that the purpose of reform and opening up is to support the freedom of cross-border transactions, not to create more barriers for regulation. If reforms lead to stricter controls, it will hinder enterprises' ability to operate efficiently. For example, complex approval processes or restrictive foreign exchange regulations can prevent companies from seizing investment opportunities. Reform must be designed with the needs of enterprises in mind, giving them more autonomy to stimulate growth and manage risks effectively (as accumulated risks often result from restricted transactions and a lack of appropriate risk-bearing mechanisms).
In Conclusion
Financial reform and opening up are not about showing off capabilities but about integrating Made in China into the global market and addressing domestic economic disparities. By supporting new growth drivers and stabilizing traditional industries, the overall economy can become healthier and more resilient.