MNI:

Compared with major Western economies, China has taken the lead in normalizing its policy, especially its monetary policy. What impact will the difference in policy pace between China and other countries have on China's policy and its market? Many are concerned that capital inflows and asset bubbles could lead to imported inflation. Do you see any reason for such concern? Thank you.

Guo Shuqing:

This is a really good question, and many others also have the same concern. The COVID-19 pandemic has represented a shock for the world's economy which is generally in a downward spiral. China experienced economic headwinds last year with its economy hit hardest in the first and second quarters. In the third and fourth quarters, China's economy began to return to normal but the annual economic growth rate dropped significantly compared to that of the previous years. Developed European and American countries, countries that are severely affected by the pandemic, and some developing countries all adopted proactive fiscal policies and ultra-loose monetary policies. We understand these macroeconomic policies are necessary for stabilizing the economy but we should take more consideration of the force and consequences of these measures, which have side effects that have started to show gradually. First, the financial markets are trading at high levels in Europe, the U.S. and other developed countries, which runs counter to the real economy. The financial market should be a reflection of the real economy. Problems will occur if the performance of the financial market and real economy become too different, and the financial markets will be forced to make adjustments sooner or later. So we are worried about the financial market, especially the possibility that foreign financial asset bubbles may burst one day.

Second, China's economy is closely intertwined with other countries as the economy has become highly globalized. After the increase in liquidity, the volume of foreign capital that flows into China will increase noticeably, which has been the case. China's economy is still recovering, and the prices of assets are appealing, with a larger interest rate spread compared with that of other countries. In this regard, it is inevitable to see foreign capital inflows. For now, the size and speed of foreign capital inflows remain controllable. On the one hand, we have been studying how to put more effective measures in place to encourage cross-border capital flows at an increasingly open level, while not causing huge fluctuations in the domestic financial market on the other hand. We are confident that we are able to do the job well.