South China Morning Post:
US President-elect Joe Biden has announced an economic stimulus package of $1.9 trillion. How does the central bank view the possible impact of the new US stimulus package on China's economy and finance? In addition, Chair of the Federal Reserve Jerome Powell recently stated that the US government will not raise interest rates in the short term. Is the central bank worried that long-term external ultra-low interest rates or even negative interest rates will deteriorate China's international financial environment since China is still the only major economy to adopt a normal monetary policy? Thank you.
Chen Yulu:
This question is about the latest update. First, Mr. Sun Guofeng will answer from the perspective of monetary policy operations and then I will elaborate on his answer.
Sun Guofeng:
We understand that a new fiscal stimulus plan in the United States is ready to be introduced, and the global financial market has already responded to this. US inflation expectations have risen and the US treasury bond yields have rebounded sharply. Meanwhile, the US dollar has appreciated against other major currencies and the RMB has also recently depreciated against the US dollar. It should be noted that the RMB exchange rate depreciated in the first half of 2020, then appreciated in the second half of the year. Again, RMB exchange rate has recently depreciated against the US dollar. These fluctuations are normal, indicating that market supply and demand have played a decisive role in the formation of the exchange rate. The flexibility of the RMB exchange rate has increased, risen, and fallen, and two-way floating has become the norm. It has played the role of an automatic macroeconomic stabilizer and has created conditions for the central bank to independently implement normal monetary policies as per China's economic situation. At the same time, we have strengthened international macroeconomic policy coordination. China is the only major economy in the world to achieve positive economic growth in 2020 and it is also one of the few major economies that implement normal monetary policies. It has promoted the recovery of the global economy, which is conducive to the normalization progress of the monetary policy of other major economies in the future. Thanks.
Chen Yulu:
The strict prevention of external financial risks was specially raised at a recent work meeting by the People's Bank of China. The main external financial risks we need to be alert to are the slowing-down of the global economic recovery, the resulting pressure to the real economy, and vulnerability to the financial system. The risks we are facing include: First, decoupling from the basic real economy in the international market and increasing fluctuation. Second, volatility or fluctuations in cross-border capital flow against a background of highly relaxed global liquidity. Third, with the unprecedented impact on the economy caused by the pandemic, low-income countries are confronting a rising debt crisis which may further affect the global economic recovery.
In the face of these three external risks, we will continue to prioritize domestic efforts. First, we will maintain the consistency, stability and sustainability of macro-economic policies, thus laying a solid foundation for China's basic economy. Second, we will improve the financial monitoring system and enhance the ability of macro-prudential management as well as the ability of systematic risk prevention and control. Meanwhile, we will increase coordination of international macro-economic and financial policies via global platforms such as the G20, in a bid to create favorable conditions for a further global economic resurgence. Thank you.
