Bloomberg:

I have two questions. My first question is, what will be the impact of divergence in interest rates between the U.S. and China, as the federal reserve starts to rise? Will monetary policy divergence have an effect on the exchange rate and how will you deal with that? My second question is, do you think corporate borrowing demand is weak based on the December data? We saw a lot of very short-term loans being made between banks and banks making very short-term loans to companies. Do you think the company loan demand is fundamentally weak? Thank you.

Sun Guofeng:

Let me take these two questions. Regarding your first question, China adopts a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies. Future yuan exchange rates are subject to many factors, including market supply and demand and international market trends, with the former playing a decisive role in forming the exchange rate. Fluctuations in the exchange rate are mainly determined by the market and make the yuan either appreciate or depreciate. With its enhanced elasticity and two-way fluctuations, the yuan exchange rate serves as an automatic stabilizer of the macro-economy and the international balance of payment and contributes to the balance between the internal and external equilibrium. Cross-border flows of funds may fluctuate to some extent with changes in the international financial market, but China's super-large economy sustains a sound domestic economy, which provides a good foundation for maintaining the internal and external equilibrium.

Generally, cross-border financial flows would maintain a dynamic equilibrium. Next, the PBC will prioritize stability and pursue a prudent monetary policy that is flexible and modest. We will place our situation at the center, and give play to the role of yuan exchange rates adjusting the macroeconomy and acting as the automatic stabilizer for international payment balance. We will strengthen macro-prudential management of the cross-border flow of capital, intensify expectation management, guide enterprises and financial institutions in cultivating a "risk-neutral" concept, balance the domestic and international equilibrium and keep the yuan exchange rates basically stable at a reasonable and balanced level. 

Now I rely to the second question. Since 2021, we have adopted a prudent monetary policy that is flexible, precisely-targeted, reasonable and modest. In the face of downward pressure from contracted demands, supply shock and diminished expectations, the PBC – beginning in the second half of 2021 – has enacted forward-looking measures including cutting the RRR, increasing the reloan quota for small financial institutions, rolling out supportive tools for carbon reduction and offering reloans to promote clean and efficient use of coal, so as to intensify the financial support for real economy. Since December, in line with the arrangements of the Central Economic Work Conference, the PBC has further intensified cross-cycle adjustments to ensure the policy cohesion between two years. We have cut the RRR by 0.5 percentage points again and guided financial institutions in increasing the stability of growth in the volume of loans. The PBC has lowered its one-year LPR by five basis points, and actively leveraged structural monetary policy tools to do a good job of "addition," and carried out the extension and transformation of two direct tools. These measures have been beneficial to the stabilization of the credit supply and the optimization of the credit structure in 2021 and ensuring a steady start in 2022. The volume of new loans stood at 19.95 trillion yuan in 2021, up 315 billion yuan year-on-year. This was a further growth considering that the volume of new loans had increased by 2.8 trillion yuan year-on-year from 2019 to 2020 and this showed that the financial support for real economy has continued to intensify. The volume of loans had increased significantly from 2019 to 2020 on a year-on-year basis, so the increase in 2021 was a further growth from that. In December 2021, new loans of the month reached 1.13 trillion yuan, rising slightly on a year-on-year basis, mainly due to the fact that financial institutions had expanded their credit supplies to fight against COVID-19 in 2020 and thus created a relatively high base. Historically, the amount of loans in December is often small, and the average volume of new loans was less than 1 trillion yuan in December from 2016 to 2019. So, the loans in December 2021 still increased compared with the years before the outbreak of COVID-19, showing the results achieved by introducing relevant policies at an early stage. Since the beginning of this year, the PBC has strengthened cross-cycle adjustment, increased liquidity, lowered the median interest rate by 10 basis points for the MLF and open market operations, helping spur financing needs of market entities and increase the stability of credit growth. 

Next, the PBC will prioritize stability and pursue a prudent monetary policy that is flexible and modest. We will increase the intensity of cross-cycle adjustments, better play monetary policies' role in volume and structure regulation, maintain reasonably adequate liquidity and guide financial institutions in effectively increasing credit availability. With the effects of a variety of policies adopted by the PBC emerging and accumulating, financial institutions will increase loans to the real economy. Growth of credit supplies will be more stable, while more credit resources will be channeled to key areas and weak links such as small and micro enterprises, scientific and technological innovation, and green development, among others, so as to ensure that money supply and social financing are generally in step with the economic growth in nominal terms. Thank you!

Ruan Jianhong:

I will add some data for the second question. The amount of outstanding domestic and foreign currency loans to enterprises and institutions increased 11 percent at the end of last year, 1.4 percentage points lower than the previous year, but 0.5 percentage points higher than in 2019. The amount of new loans to enterprises and institutions added 12.14 trillion yuan for the whole year and was roughly the same as the previous year. The amount of medium and long-term loans added 9.24 trillion yuan, up 464.2 billion yuan year-on-year. 

In terms of the actual flow of medium- and long-term loans, the scale of support provided by financial institutions to key sectors is still consistent and stable, which is reflected in the following aspects:

First, the manufacturing industry's medium- and long-term loans maintained rapid growth. As of the end of 2021, the manufacturing industry's medium- and long-term loans grew 31.8%, 18.1 percentage points higher than the growth rate of such loans for all industries. In 2021, loans for the manufacturing industry increased by 1.67 trillion yuan, 300.5 billion yuan more than the previous year. Specifically, the growth rate of medium- and long-term loans for the high-tech manufacturing industry was 32.8% in 2021, 364.3 billion yuan more than the previous year.

Second, the industrial sector's medium- and long-term loans saw a relatively high growth rate. As of the end of 2021, the industrial sector's medium- and long-term loans increased 22.6%, 2.6 percentage points higher than the previous year's end. The sector saw 2.49 trillion more medium- and long-term loans in 2021, increasing 650.3 billion yuan year-on-year.

Third, the infrastructure sector's medium- and long-term loans sustained a steady and robust growth rate. As of the end of 2021, this growth rate was 15.3%, 1.1 percentage points higher than the previous year's end. A total of 3.82 trillion yuan of medium- and long-term loans was added to the infrastructure sector in 2021, increasing 734.6 billion yuan year-on-year.

Fourth, the service industry's medium- and long-term loans, excluding the real estate sector, have kept growing fast. Its growth rate reached 15.4% as of the end of 2021, 1.7 percentage points higher than the growth rate of such loans for all industries. A total of 5 trillion yuan of medium- and long-term loans was added to this industry in 2021, 261.8 billion yuan more than the previous year. Thank you.

Liu Guoqiang:

Regarding the first question on the exchange rate, I would like to make a few more points for your reference. Observing the trend of the exchange rate is getting tougher and tougher nowadays. In the past, the exchange rate fluctuations between the yuan and the U.S. dollar were rather regular, as they sat on the opposite ends of a seesaw. This meant that when the U.S. dollar appreciated, the yuan would be devalued relatively. Still, there were several cases in 2021 when the U.S. dollars appreciated while the yuan showed a stronger trend. This seems unreasonable and makes short-term observation even more difficult. However, it can still make sense. For instance, China's economy posted fast growth last year with a relatively high trade surplus, and the expectations for China's economy were rather promising at the early stage. Therefore, the yuan appreciated, which led to a situation where the U.S. dollar appreciated while the yuan got even stronger. Nevertheless, if we look at the longer span of time, the situation will make more sense, and the fluctuations are still reasonable, balanced, and reciprocal. Thus, the exchange rate fluctuations remain consistent and stable, and relevant rules haven't changed in the long run, only that the calculation and forecast in the short term have become difficult. 

In addition, China is one of the major countries in the world. A continued unilateral appreciation or devaluation rarely occurs in big countries, and it will never happen in China. This is due to our sound macro regulation. Instead of flooding China's economy with liquidity, we have been following economic rules, and our micro-market mechanism proves to be effective. As a result, although there may be some interferences, the exchange rate fluctuations between the yuan and the U.S. dollar are generally reasonable, balanced, and stable on the whole. Thank you.

Xing Huina:

Thank you to today's speakers for their professional and detailed response and introduction. Today's press conference is at this moment concluded. Thank you to all our friends from the media.

Translated and edited by Lin Liyao, Wang Wei, Li Xiao, Li Huiru, Zhang Rui, Liu Qiang, Zhang Tingting, Liu Sitong, Zhu Bochen, Wang Yiming, He Shan, Xu Xiaoxuan, Zhang Jiaqi, Wang Qian, Yuan Fang, Liu Jianing, David Ball, Jay Birbeck, Drew Pittock and Tom Arnstein. In case of any discrepancy between the English and Chinese texts, the Chinese version is deemed to prevail.