Profile|Chengqing Liu: Private Sector Needs a Financial System within Its Own Class


Mr. Chengqing Liu is the Executive Director at the Chinese Academy of Financial Inclusion at Renmin University of China (CAFI). Previously he served at Accion International as a Lead Specialist in charge of its training and capacity building programs in China. Mr. Liu has been dedicated to microfinance and financial inclusion in 2006, when he was involved in the World Bank Academy’s Microfinance Training of the Trainers program and became a core member of the program’s curriculum group.


From 2011 to 2015, Mr. Liu served as a judge at China Banking Association’s Micro-Entrepreneurship Prize Panel. He boasts rich and diversified professional experience in both public and private sectors, having worked with a provincial government and a multinational corporate of global renown. After graduating from Xiamen University in 1984, Mr. Liu joined Xinhua News Agency, specializing in researches in urban economic reform. Mr. Liu’s reportage on Herr Werner Gerich, the first Westerner who has ever served as a factory director in mainland China since 1949, and his management practices in a Wuhan-based state-owned factory is the first ever account on Western management professionals’ involvement in the running and reform of China’s state-owned sector and won the annual award of Xinhua.


Herr Gerich, the protagonist of the said reportage of Mr. Liu’s, is among the ten recipients of the China Reform Friendship Medals, presented at the 40th Anniversary Gala honoring China’s Reform and Opening-up, held in Beijing on December 18, 2018.         



Financial System and Market Economy Should “Marry within Their Own Class”


For most people, the first full-time job usually leaves an inerasable background color on the social persona that one would assume. A freshly minted graduate from Xiamen University, Chengqing Liu joined Xinhua News Agency in 1984, working from the Agency’s headquarters in Beijing. What he benefits from this position are two-fold: first off, when observing urban economy and its associated systematical issues, he can always penetrate layers deeper underneath; and secondly, he has acquired a habit to scrutinize phenomena from a media professional’s vantage point.


In the very morning of the day when this interview is scheduled, Mr. Liu shared with some old friends in a WeChat group his opinions on issues surrounding “nourishing privately-owned businesses via financial measures”:  


“As China’s reform and opening-up enters its fifth decade, based on my observations and practices, the nation’s private-sector (here I deliberately avoid using the neutral term “civilian-run”) entrepreneurs have long outgrown their infancy and are now able and mature enough to compete in any corner on the surface of the planet. This phenomenal rise should by and large be attributed to the trail-blazing effect of the urban economic reform, which, jumpstarted one score and fourteen years ago, was steered to build a modern enterprise system.


“When I interviewed Herr Gerich, the “Foreign Director”, Wuhan Diesel Engine Factory, with two thousand souls on its payroll, was the quintessential state-owned enterprise. What the ‘Foreign Director’ strove to convey to the Chinese society are management ideas and experience of the brave new world of market economy. Even more importantly, having this “Foreign Director” in place was somehow symbolic of the country’s resolve and confidence to engage in fundamental reform and opening-up. Back then, the incident in which the “Foreign Director” fired the factory’s chief engineer, who was a party member if nothing else (no easy feat even in today’s state-owned enterprises), could not be made public, and as a result, the story The Foreign Director’s First Three Rounds of Rapid Fire, co-authored by Mr. Changyu Sun and me, was never published but circulated as an internal reference for the eyes of the government’s top echelon only. It is only later that the piece was made a mandatory learning material, first for the cadres within the establishment and then for the enterprises.


“Thirty-four years has past, during which period the enterprises have been engaging in earnest in reforms, becoming increasingly market-oriented, and entering competitive sectors. However, the reforms and opening-up of the financial sector, especially the reforms, have not been marching in lockstep with the development of the private sector or private economy. Private sector or private economy do not have a financial system, a banking system in particular, in its own league to underpin its growth. The shortage of available, accessible and affordable financing services for private sector is a chronic problem that has not arisen overnight. Had it not been the emergence of inclusive finance and digital finance in the past five years, the situation could have been even more severe.”


That the private sector does not have a financial system within its own class is the problem for which Mr. Liu has been calling for a solution. According to him, large and medium-sized financial institutions are more than equal to the task of serving state-owned sector but reluctant to deal with the private sector. The reason lies in the differences in incentive mechanisms of the two systems. Digital finance and inclusive finance, both innovations of new concepts, could hold the key to the future reform of China’s financial system. Innovations of ideas, products, and services within the frameworks of digital finance and inclusive finance necessitate debates among all stakeholders on one single platform and any unilateral effort is not enough to make an impact. Appropriate regulatory frameworks for digital and inclusive finance are critical to the sector’s sound and sustained growth.   


Thought process as such quietly goes on in Mr. Liu’s mind on a daily basis. His forward-looking attention to urban economic reform has buried a pipeline of thoughts for him deep underneath, and in recent decade, it is the influence of Prof. Muhammad Yunus, founder of the Grameen Bank, and requirements of his ensuing career choices that join forces to propel Mr. Liu into the realm of financial inclusion.     



Promote Genuine Financial Inclusion on the Basis of Individuals’ Capacities

Prior to joining CAFI, Mr. Liu worked with Accion, responsible for its training and capacity building endeavors in China. He believes that Accion’s individual capacity-based microlending model is of great import. “In the case of many micro and small startups, corporate data are not sufficient as the only determinant [when accessing their creditworthiness]. In this context, data that reflect an individual’s capacity are a better reference.” Says Mr. Liu. Also, he wants to make it known to more people that the true meaning of financial inclusion lies in that the financial services should be inclusive” but not necessarily favorable or preferential“Inclusive finance can be an enabling power to those at the bottom of social hierarchy that are traditionally excluded from the legacy financial sector. But it also has to be in line with the law of market economy.”   From his vantage point, the existential difference between inclusive finance and legacy finance is that inclusive finance has to adhere to the dual mandate of financial performance and social impact so that the inclusive financial services providers can achieve long-term sustainable development and grow in tandem with their clientele.


It Is Necessary That Informal Finance Be Allowed Public Existence

“In my hometown in Fujian, informal finance, in the form of underground rotating saving and credit associations, has been long in existence.” Says Mr. Liu. In his opinion, like blood circulation, the demand for lending and resulted activities have always been there since ancient times. In this sense, informal financial services should be granted a reasonable breathing space as the market is always there. One of the evolutionary paths of the global movement of financial inclusion in the past half a century, Mr. Liu maintains, traces its origin to informal finance, including rotating saving and credit associations.