Yang Tao, Deputy Director of National Institution for Financial and Development
The term “financial powerhouse” refers to two concepts: how to address the issue of China's enormous but underdeveloped national finance system, and how to serve the strategy of making China a stronger country. Digital finance will alter the aspects, functions, and efficiency of finance, hence altering its essential competitiveness. This is about the core competitiveness of finance from an international standpoint, thus the historical purpose of digital finance is quite basic.
Digital economy has already been clearly defined, which refers to economic activities that use digitized knowledge and information as production factors, with modern information networks as important carriers, and the efficient use of technology as the driving force for efficiency improvement and economic structural optimization.
Correspondingly, the definition of financial activities is similar. For example, in the macro-financial field, the emergence of big data and artificial intelligence (AI) is helpful for macro-financial analysis, especially statistical analysis. In recent years, central banks of various countries have made efforts to use new technologies for monetary policy operations and financial risk identification. From a micro perspective, these new technologies have profound effects on the experimental analysis of individual behaviors in financial markets and the identification and pricing of risks.
Understanding technology financing involves investigating challenges on both the demand and supply sides. For example, we currently prioritize supporting technology businesses that fulfill policy criteria, but focusing on general technological l innovation activities is insufficient because only technology companies that meet policy requirements receive financial support.
There are also shortcomings in balancing major basic technological innovations with applied technological innovations, as well as in considering the resilience and effective demand capacity of technology companies from the demand side. When it comes to the supply side, whether it is at the top-level design level or how financial institutions match the valuation characteristics of technology companies and discover their features, it is difficult to ensure professionalism in every field when tech companies are seeking financial technology, as there are too many subsectors in the technology sector. In addition, there are also issues related to cooperative ecology and accountability-sharing mechanisms. If focused on these areas, digital finance has great potential.
When comparing digitalization to inclusive finance and pension finance, there are certain similarities, as evidenced by the fact that digital finance can increase overall financial efficiency. As long as general financial efficiency improves, so will the efficiency and benefits of financial matching. We can fully utilize the role of resource allocation in digital finance and match appropriate financial products with clients, resulting in a “precision treatment” impact.
Green finance in its development has also encountered significant pain points, such as the difficulty in effectively monitoring, measuring, and verifying the effective recommendations of green products or green ESG values. The possibility of “greenwashing” has increased as a result of rising information asymmetry caused by a lack of environmental information, particularly since financial transformation necessitates more effective use of digital technologies. Overemphasis on “greenness” may increase the operating costs of operating institutions and affect the sustainability of operations by increasing risk and vulnerability. Digital finance and financial technology approaches will assist to ease these conflicts, promote standardization and transparency in green financial services, and improve green financing, investment, asset management, carbon accounting, and other areas.
Published on December 28, 2023