PoF Individual Assignment

Group A

Zheng Xinyang 20211102

1.0 Introduction

This assessment selects China's financial sector as an analysis, explaining the

role of stock exchanges, central banks, and various financial

intermediaries/institutions in economic development. Part 3.1 introduces how

companies implement effective corporate governance and the role of the government

in corporate governance. The last part introduces the recent development of China's

economy.

2.0. Concept of a financial sector

Financial services are a component of the economy made up of firms and

institutions that provide financial services to commercial and retail consumers. This

sector encompasses a wide variety of organizations, including banks, investment

firms, insurance companies, and real estate corporations. The financial sector is

critical to the operation of the economy. The purpose of the financial industry is to

develop this country into a financial center (Naoyuki Yoshino, 2006).

2.1. Financial services in China

Financial services in China refer to the services offered by the finance industry in

the country, including banks, investment banks, insurance companies, credit card

businesses, consumer finance companies, state-owned corporations, and stock

brokerages. Over the last decade, China's financial services business has risen at a

breakneck pace—product offerings, talent pools, and sales channels have expanded in

volume and quality across industries. China's financial industry has increasingly

opened up to the rest of the world in recent years, eliminating barriers to entry for
international financial organizations such as banks and insurance businesses. Chinese

Premier Li Keqiang advocated in July's State Council executive meeting that China

should continue to enhance financial liberalization and strengthen financial services in

order to stimulate the real economy (Xinhua, 2021).

2.2. The Role of Stock Exchange

On the Chinese mainland, there are currently two major independently operated

stock exchanges: the Shenzhen Stock Exchange and the Shanghai Stock Exchange.

The China Securities Regulatory Council directly administers and operates the Stock

Exchange on a non-profit basis. The stock exchange serves the following functions:

1. Offer opportunities to put hold assets and resources in securities to benefit the

national economy; 2. Assurance the adequacy and precision of exchanges and

assurance the cooperation among demand and supply to choose costs; 3. Guarantee

monetary supporters through the establishment of sensible and proper overseeing

standards between various monetary sponsors.

2.3. The Role of Central Bank

In a developing economy, the central bank's objective is to promote and maintain

an increasing level of production, employment, and real income. The central banks of

the majority of developing countries have been given broad authority to support

economic growth.

The Central Bank of China, or People's Bank of China, performs the following

functions:

1. The primary, and perhaps most literal, function of central banks is to print

money, which is subsequently circulated throughout the economy and used by

individuals, households, and corporations to conduct transactions, effectively tracking

where expenditure goes.

2. Central banks safeguard the stability of their economies' financial systems,

which entails closely monitoring lending standards across the economy and ensuring

that credit is readily available when needed. They are also the lender of last resort in

this scenario for commercial banks and the government. Thus, when the government

requires funds and there are no other sources or sources available, the central bank

might act as the lender of last resort.

3. Monetary policy is set by central banks. Monetary policy employs a variety of

distinct tools, the most important of which is interest rate setting. Reduced interest

rates make credit more accessible to individuals, firms, and anybody else in the

economy in need of a loan. Increased interest rates have the opposite effect – they

make borrowing more expensive and restrict credit availability. When economic

conditions deteriorate and economic growth slows, central banks are responsible for

lowering interest rates to ensure that the economy has easier access to credit.

2.4. The Roles and Operations of the various Financial intermediaries

A financial intermediary is a company or organization that acts as a middleman

between a service provider and a consumer. In a financial setting, the entity or

individual who stands between two or more parties is referred to as the broker. In

theory, a financial intermediary converts savings into investments (Money and Banking,

2015).

Depository institutions, contractual savings institutions, and investment

intermediaries are the three categories of financial intermediaries.

Finance businesses, mutual funds, money market mutual funds, and investment

banks are additional investment intermediaries.

The role of the depository institution is to receive deposits and provide loans.

Commercial banks, savings and loan associations, credit unions, and building

societies are only a few examples.

Contractual Savings Institutions' role is to collect cash from clients on a

contractual basis at predetermined intervals and to meet reasonably predictable future

payout requirements. For instance, life insurance, property and casualty insurance,

and pension funds are all examples.

As previously said, financial intermediaries play a critical role in today's global

economy. They are the economic "lubricants." Financial intermediaries can help

investors manage their diverse investment portfolios and meet their financial needs.

Financial intermediaries play a critical role in the efficient allocation of resources in a

market economy.

3.0. the role of government in corporate governance

The government and appropriate regulatory bodies have historically played a

critical role in supporting and advancing corporate governance. A sound corporate

governance framework must ensure that all market participants can rely on one

another when it comes to creating private contractual ties. On this basis, appropriate

and effective rules, regulations, and systems are developed. The government's role in

corporate governance is comprised of the following:

1. By enacting rules and regulations, regulate the rights, responsibilities, and

obligations of all parties involved in corporate governance.

The assignment of responsibilities for various powers within a specified range

should be unambiguous and ensure the realization of public interests. Within a given

range, the legal and regulatory requirements affecting corporate governance structure

practice should be harmonized in terms of legal provisions, transparency, and

operability.

2. Ensure the company's transparency by developing a mechanism for

information disclosure.

A robust disclosure system is a critical component of market-based oversight of

corporate behavior and a necessary condition for shareholders to use their voting

rights effectively. Disclosure may be an extremely effective instrument for influencing

company behavior and safeguarding investors. A robust disclosure system can also aid

in the attraction of capital and the maintenance of market confidence (OECD, 2015).

3. Ensure ongoing improvement in corporate governance by enforcing applicable

rules and regulations. Generally, the government and relevant regulatory agencies

oversee corporate governance's continual improvement with the purpose of preserving

and consolidating its contribution to market integrity and economic efficiency. The

government and associated regulatory bodies have fostered ongoing development in

corporate governance through the implementation of enacted rules and regulations.

The first is to regulate the board of directors' operation and to underline the

board's critical role in regulating management's behavior and assuring the

trustworthiness of information provided to investors.

 The second objective is to prevent companies from publishing inaccurate

information, to suspend and penalize accounting firms and publicly traded companies

that violate financial accounting and auditing standards, and to ensure that any

inappropriate information published by a company is terminated in order to protect

investors and the public interest effectively.

The third objective is to establish an information disclosure system, standardize

information other than financial reports of publicly traded firms, completely eliminate

selective disclosure and insider trading, assure public disclosure of information, and

ensure fair information transmission.

3.1. How businesses implement effective corporate governance

Corporate governance is to facilitate the effective monitoring and control of

business operations. Its essence is based on operational fairness and transparency, as

well as greater disclosures for the purpose of safeguarding the interests of various

stakeholders (Arora and Bodhanwala, 2018). Corporate governance systems are

believed to improve a firm's performance by facilitating sound decision-making

(Shivani et al. 2017). Corporate governance is a term that refers to the set of

interactions that exist between a company's management, board of directors,

shareholders, and other stakeholders (Maier, 2005). Corporate governance is defined

as "ensuring that corporations consider the interests of a diverse variety of

stakeholders, as well as the communities in which they operate, and that their boards

of directors are accountable to the company and its shareholders" (Organization for

Economic Cooperation and Development, 1999). Corporate governance is often

regarded as a crucial factor impacting an economy's growth prospects since sound

governance standards mitigate risk for investors, improve financial performance, and

aid in attracting investors (Spanos, 2005).

To summarize, good corporate governance ensures that management considers

the best interests of stakeholders and assists businesses in achieving long-term success

and economic growth. It also enhances control over management and information

systems, such as risk management. Now I'll cover how to develop good corporate

governance in businesses.

1. Create a detailed diversity policy for the board of directors. For example,

transparent reporting of board evaluations and a well-defined process for appointing

new directors. Board members, who are responsible for overseeing the company's

operations, should be a diverse group with a range of perspectives.

2. Transparency is a necessary component of sound company governance. The

willingness and ability of a firm to provide accurate, clear, and simple-to-understand

information with stakeholders, especially shareholders, fosters trust and strengthens

its reputation. This requires organizations to accurately report both good and bad

news. Attempting to prevent unwanted publicity and then discovering it is more

detrimental to a firm and its reputation. Complete disclosure fosters integrity. It

contributes to the development of loyalty and trust.

3. Strive to create long-term value. While short-term victories seem nice and

provide opportunities for publicity, a corporation with sound governance should strive

for long-term value creation. A business devoted to long-term growth is likely to be

far less volatile than a business focused exclusively on the short term.

4. Proactive risk management; recognizing risks is critical, but taking a proactive

strategy to mitigating those risks prior to their occurrence is the goal. Rather of

attempting to weather the storm, it is in the organization's best interest to avoid it

entirely. A sound risk management strategy, an effective internal control architecture,

and an up-to-date disaster recovery plan are all critical components of accomplishing

this goal.

4.0. Recent economic development in China.

Global economic activity has seen unprecedented volatility as a result of the COVID-

19 epidemic, and China's economic development has stalled. With the start of mass

vaccinations, China's economy begins to revive. Rapid and substantial governmental

support insulated the economy from the negative impact of income lockdowns,

thereby supporting demand and preserving supply capacity (MAS, 2021).

5.0. Summary

This assessment focuses on the role played by China's numerous financial sectors

in the development of the financial industry, the function of the government in

corporate governance, and how corporations execute efficient corporate governance.

References
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firm performance: Indian evidence. Glob Bus Rev 19(3):675–689
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Maier S (2005) How global is good governance? Ethical Investment Research

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MAS. (2021). Monetary Authority of Singapore.

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Money and Banking. (2015). BCcampus Open Publishing – Open Textbooks Adapted
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3-the-role-of-banks/

Naoyuki Yoshino. (2006). Monetary Authority of Singapore.

https://www.fsa.go.jp/frtc/seika/discussion/2006/20061020.pdf

OECD (2015), G20/OECD Principles of Corporate Governance, OECD Publishing,

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