Photo: CFP

In 2015, amid the turbulence in domestic and global markets, the Chinese government launched a series of reforms for the financial sector.

Those reforms include lifting the cap on interest rates, reducing tariffs on certain necessities, establishing more free trade zones, reforming the domestic deposit insurance system and adjusting the yuan's exchange rate central parity system.

Although these reforms involve different areas, many follow the theme of replacing government control with a market-orientated mechanism.

Other reforms aim to further integrate China's financial system with the global economy.      

"Compared with financial reforms, reforms in other sectors in China have been more or less pro forma this year,"  Tian Yun, director of the research center of the China Society of Macroeconomics, told the Global Times on Friday.    

The Global Times spoke with three financial experts this week to ask their opinions on which of China's financial reforms they thought were most crucial in 2015.

They are Zhao Xijun, deputy director of the Finance and Securities Research Institute at Renmin University of China, Song Fengming, director of the Department of Finance in the School of Economics and Management at Tsinghua University, and Liu Dongliang, senior analyst at China Merchants Bank.

Zhao: interest rate reform

"The most representative financial reform this year was lifting the interest rate cap," Zhao said on Thursday.

The People's Bank of China, China's central bank, abolished its official cap on savings interest rates on October 24, allowing domestic financial institutions to offer market-based interest rates.

The AFP said in a report on October 24 that the reform would "introduce true competition for capital" in China.

"The reforms on interest rates started from 1996, and it was not until this year that those reforms came to a conclusion," said Zhao.

Zhao noted that the pace for reform sped up after the Third Plenary Session of the 18th CPC Central Committee held in November 2013, during which a document was released on deepening the domestic reforms in an all-round way.

Zhao said the government used to set a relatively fixed interest rate for domestic financial institutions, but after the reform, banks can set their own interest rates as needed.

"If the banks are capable, and people are willing to deposit money with them, they can set an interest rate which can give savers better yields," Zhao said.

"It's hard to explain the tangible impact of this kind of policy on the domestic banking sector, because it has just been launched," Zhao noted. "However, we can learn from past experience that the government's domination of any competitive sector usually leads to inefficiency."

"Besides, the interest rate reform could largely enhance banking services, and this will benefit the banks' customers," Zhao said.

Because the reform will intensify competition in the banking sector, he said small banks should enhance their competitiveness with many measures, such as forming a union of small financial institutions, or seeking mergers with larger banks.

Song: deposit insurance system

Song sees the creation of the deposit insurance in China as the most important financial reform in 2015.

The deposit insurance system went into effect on May 1, 2015.

Under the system, deposits of up to 500,000 yuan ($77,200), including both principal and interest, are insured. The scheme covers both yuan deposits and foreign currency-denominated deposits.

Like the interest rate reform, there was a long period of preparation for the deposit insurance system.

According to Song, State-owned commercial banks started a joint-stock system reform in 2004. Since then, many reforms were launched to promote the marketization of domestic banks, including the introduction of private capitals and the promotion of market-based interest rates.

"As those reforms proceeded, the government gradually realized it needed to establish a deposit insurance system to prevent systematic risks caused by the increasingly competitive and volatile markets," Song said.

He said the deposit insurance system will directly benefit savers, who "are worried that they can't recover their deposits if a bank fails."

"But with the new insurance system, over 99 percent of savers can get their money back," Song said.

The system will especially benefit small and medium-sized banks, as well as the rural credit cooperatives.

"Generally speaking, large banks have a competitive advantage over their smaller peers because savers tend to worry about the solvency of the latter. As such, they prefer keeping their money at larger banks," Song said.

However, with the new deposit insurance system, savers know they can get their deposit back no matter where they choose to put their money.

"This will largely enhance the competitiveness of small banking institutions," Song said.

Nevertheless, he noted that there is a lot of room for improvement as well.

"For example, the government should formulate different premium levels based on the scale of banking institutions," Song said.

"They should also design an error correction mechanism to help the banks prevent any possible repayment risks," Song noted.

Liu: exchange rate reform

On August 11, the central bank announced changes to the yuan's central parity system to better reflect the market developments in the yuan-US dollar exchange rate.

According to Liu, this clearly shows the government's desire to unpeg the yuan from the US dollar and allow it to fluctuate against a basket of currencies.

"This should be the most crucial financial reform this year," Liu noted.

He said that under the old system, the government set the yuan's exchange rate.

"The yuan's exchange rate seemed to be 'stable' for a long time, but the pressure has been accumulating as China's economy slips in recent years," Liu said.

According to Liu, similar "pressure" also existed in many other emerging economies in the past years.

In some cases, the pressure deteriorated into uncontrollable financial risks in some countries and their governments had no choice but to launch exchange rate reforms to cope.

"In China, why can't we voluntarily initiate reforms before a financial crisis actually takes place?" Liu said.

In his mind, the exchange rate reform has both pros and cons. After the reform, the yuan's exchange rate depreciated greatly against the US dollar, benificial to China's exports.

But Liu also stressed that the current depreciation is "mild" by international standards, and that its impacts on domestic exports will not become apparent until 2016.

Because of the yuan's depreciation against the dollar, there has been speculation of capital flight in recent months, but Liu noted that the recent capital flows have little to do with exchange rate reform.

He said this is mainly triggered by China's slipping economy.