A year ago, Wang Zhaoxing, a senior government official who is vice chairman of the China Banking Regulatory Commission (CBRC), declared that the country hoped to promote financial innovation and yet limit potential systemic risks.

How has that policy fared so far?

If we take financial innovation to include new financial technologies, institutions, and markets, as well as creativity with existing institutions, products, and processes, then we can conclude that Chinese firms are indeed demonstrating a certain level of financial innovation, despite continuing government clampdowns on what it sees as exceedingly risky ventures — like Bitcoin and other cryptocurrencies.

There are several examples of nascent financial change. Share prices in new initial public offerings (IPOs) for Chinese firms soared on the Shanghai Stock Exchange and the Hong Kong Stock Exchange during 2017, powering those bourses into the top tier of global financial markets for IPOs, right behind the New York Stock Exchange, according to a report by Deloitte.

What’s more, stocks in Chinese companies last year became increasingly accessible to foreign investors. The availability of A-shares, which were historically only available for purchase by mainland citizens, on emerging market stock market indexes are giving overseas investors newfound access to the Chinese market, the report said.

Meanwhile, after digital currencies proliferated in the first half of last year, the Chinese government led additional crackdowns on users and distributors of cryptocurrencies, which are not tied to a central bank and some of which are used by consumers to purchase illicit goods and services on the so-called dark web. The alternative currencies were popular across China, and a local innovation, NEO, was gaining a lot of publicity globally before Beijing pronounced all initial coin offerings illegal and banned cryptocurrency trading in September last year. However, anyone in China with sufficient computing resources can still create new cryptocurrencies.

In fact, the clampdown is consistent with Beijing’s commitment to increase financial openness and creativity while reining in spiraling risk. The above changes remain fundamental largely because they are examples of innovation driven by companies and institutions in China, not the West. These days, the average person in China is enjoying unprecedented levels of financial freedom. More money is flowing into more companies in China, giving investors opportunities that were unheard of before.

Meanwhile, access to payments via digital and alternative currencies is promising to put people, not governments, in charge of payment systems.

Last year, 161 new companies were listed on the Hong Kong Stock Exchange, raising nearly 128.2 billion Hong Kong dollars ($16.3 billion), an increase of 34 percent from the previous year. “Thanks to the new listings debuting in the last quarter of 2017, Hong Kong has cemented its position as this year’s third-largest IPO funding venue over the last 12 months,” says Edward Au, the Shanghai-based co-leader of Deloitte China’s National Public Offering Group. “We also saw a record-high of the number of IPOs from overseas companies due to an improved market valuation,” or, in lay terms, meaning higher prices for shares.

In addition to deregulatory central policies that allow greater foreign access to the Chinese market, Au adds, other contributing factors included China’s 19th Communist Party Congress, “as well as more southbound capital inflows from the maturing market connectivity programs that boosted the appetite for IPO subscription activities.”

For the A-share market, Deloitte counted 436 new listings in 2017, raising approximately 230 billion yuan ($36 billion). That translates to a 92 percent rise in the number of new listings and a 53 percent increase in IPO funds since 2016.

Deloitte claims that Hong Kong’s IPO market is “likely to remain vibrant at a similar level as 2017,” with more IPOs emerging from the new economic sectors affected by the planned listing regime reform. “The vibrant IPO activities of the Chinese mainland market have considerably benefited from the supervision of the stable number of IPOs to the market, a faster IPO pace and a stabilized IPO price,” says Anthony Wu, leader of Deloitte China’s A-Share Capital Market of the National Public Offering Group. “The Shanghai Stock Exchange has outpaced Hong Kong due to its larger number of big, new listings.”

According to Goldman Sachs Research, other lower-profile financial innovations are also impacting Chinese and foreign investors. More and more local firms are listed on Bond Connect and Stock Connect, two mutual market access schemes that allow investors from mainland China and overseas to trade in each other’s markets.

“For global investors, the [ongoing] opening up of China’s capital markets is … a seminal event,” said Tim Moe, a Chinese market equity analyst at Goldman Sachs. “There’s a driving rationale by Chinese policymakers to have more foreign expertise in the market. This is a progressive and gradual opening.”

The newest policies, announced by vice finance minister Zhu Guangyao, include increasing the limit on foreign ownership in joint-venture firms involved in the futures, securities, and funds markets to 51 percent from the current 49 percent. China is also dropping the foreign ownership cap on banks; small- and mid-sized commercial banks, including Jiangsu Wujiang Rural Commercial Bank, Ping An Bank, and Wuxi Rural Commercial Bank, are expected to be eyed by foreign investors.

Adam Cecchetti, founder and CEO of Seattle-based Deja Vu Security, says that creative Chinese cryptocurrency developers are incorporating security measures now in the very source code and development plans for their latest alternative currency offerings, in the hope of making them impenetrable not only to hackers, but possibly to governments and financial regulators as well. That demonstrates a growing repudiation of the established, global financial status quo.

Editors: Wu Haiyun and Matthew Walsh.

(Header image: Tomohiro Ohsumi/Getty Images/VCG)