The Central Committee and the State Council of the People’s Republic of China attach great importance to financial inclusion, which society and the public expect. With our joint efforts, recent years have seen remarkable progress in this area. Significant improvements have been made regarding coverage, accessibility, and affordability of financial services and service quality. As we know, financial inclusion is a process of continuous improvement, with the supply-demand balance keeping changing at different stages. The supply of financial services needs timely adjustment, but to enable that, it takes a long time and requires long-term efforts. More efforts are necessary for the following two areas to develop inclusive finance to make financial services more targeted.
I. Inclusive finance
First, we need to identify and meet real financial needs. Thanks to the efforts made in the past years, China has seen a rapid increase in the number of inclusive financial institutions and funds. Presently, there are 8.9 banks and 57 outlets on average at county level. In the past, rural credit cooperatives and the Agricultural Bank of China were the leading financial service providers in counties, but now other large banks, certain joint-stock banks, and city commercial banks have also set up outlets at the county level. The average number of insurance institutions and county-level outlets stands at 11.8 and 27, respectively. In addition, digital finance has dramatically increased the supply of financial services at the county level. The cost of funds has been lowered quickly, and the average rate on inclusive loans is 5.65%. These achievements are hard-won. In addition to the rise in number and reduction in cost, we must also pay attention to the changes in real financial needs. For example, people nowadays have a huge demand for critical illness, long-term care, catastrophe, and agriculture insurance products. Meeting their demand is conducive to the quick resumption of work and poverty prevention due to illness and disaster. It can also ensure that the elderly in need have access to good care via commercial channels. These are the fundamental needs for inclusive financial services, which are to be identified and met by financial institutions.
Second, we need to provide financial services to help iron out the business cycle fluctuations and income fluctuations. Micro and small business owners, the self-employed, contract workers, and the large number of rural residents are affected by changes in the economic environment and labor market, so their business cycles and income are subject to significant fluctuations. For example, the income of rural migrant workers may vary considerably from month to month. Sometimes they work long hours and earn a lot, but sometimes they cannot find any job for one or several straight months. In such cases, they have little or no income. When their income is reasonable, they have little demand for credit, but when their income is low, they have a great need for credit due to necessary expenditures or emergency expenses. Therefore, financial institutions should be able to offer financial products that are more flexible in terms of maturity, terms and conditions, and repayment schedules based on risk assessment to meet different financial needs and prevent the borrowers from discontinuing production and having their lives affected because of changes in business cycles and income fluctuations.
II. The third-pillar pension system
We all know that developing the third-pillar pension system has been a critical priority by the Central Committee and the State Council. The launch of the tax-deferred pension annuities pilot marked the first time that China explored the use of tax incentives to promote the development of the third-pillar pension system. We launched the exclusive pension pilot in Zhejiang Province and Chongqing Municipality and the pension wealth management pilot in Wuhan, Chengdu, Qingdao, and Shenzhen. These pilots have enriched the third-pillar pension products and services by deepening the supply-side reform of pension finance. The gross premiums from commercial annuities totaled RMB48 billion in the first three quarters, with aggregate reserves reaching RMB623 billion, demonstrating a sound growth momentum. With more needs for pension-related financial products being unleashed, the third-pillar pension market will enjoy great potential. At present, 263 million people in China are aged 60 and above, accounting for 19.1% of the total population, implying huge demand for pension finance.
Moreover, the balance of residents’ deposits in China has exceeded RMB91 trillion, which means that there are considerable financial assets that can be converted into long-term pension funds. Therefore, China is well-positioned to promote the sound development of the third-pillar pension system. In particular, priority should be given to the following aspects:
First, we need to ensure a wide variety of products. The third pillar covers multiple groups of customers with different financial statuses, risk appetites, and retirement planning. There are no one-size-fits-all products. For example, middle-aged people, retiring people, and the elderly are different in pension fund accumulation and investment needs. Based on accurate customer segmentation, the financial sector should develop and offer diversified third-pillar pension products to meet differentiated demands.
Second, third-pillar pension products should be made more attractive. As contributing to the third-pillar pension is voluntary, promoting people’s willingness to participate is key to its expansion. In addition to tax incentives offered by the government, financial institutions should improve their pension management capability and make their products more appealing so that more people are willing to participate in third-pillar pension programs and get better prepared for retirement.
Third, we need more professional pension institutions. Currently, only a small number of financial institutions specialize in the pension business in China. We encourage the development of more professional pension entities and welcome overseas professional pension institutions to participate in China’s market and provide high-quality pension products and services for consumers.
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