Bloomberg:

I have two questions. What's your outlook on the currency? We've seen stronger than expected yuan fixing since late June. Has China reintroduced the counter-cyclical factor again and is the PBC going to use other tools like cutting the FX RRR to prevent wild swings in the currency? Secondly, will you take more steps to address the ongoing weakness in the property market? If yes, what specific steps? Will this focus on city level policies or broader macro level policies? And just quickly, deputy governor Liu, you just said it's common wisdom that the economy will take one year to recover from the pandemic and we're only half a year in. That seems a lot more pessimistic than how the government was talking about the economy in March at the NPC or since then. Is it the common wisdom of the PBC that recovery will take another six months? Thank you. 

Liu Guoqiang:

Thank you for the questions. Let me answer your last question first. Generally speaking, there is an economic recovery process following a pandemic, but it varies from country to country. From China's perspective, the post-pandemic recovery has been relatively robust, although certain adjustments and adaptation processes are still ongoing. Hence, it is quite typical to observe fluctuations in certain indicators. Nonetheless, the trend is positive. I am highly confident and certain about this. As previously stated, our financial indicators aptly illustrate this situation.

Regarding the exchange rate, the RMB has experienced some fluctuations lately, and there's widespread interest in its changes and future trends. We have repeatedly reiterated that the exchange rate is neutral and cannot be manipulated arbitrarily. Doing so would yield no benefits and could potentially harm both us and others. The long-term trend of the RMB exchange rate hinges on the economy's fundamentals, whereas its short-term trend is unpredictable. Taking a comprehensive view of both the long and short terms, China is a large open economy, and various factors influence the exchange rate, leading it to appreciate or depreciate. However, it will not deviate excessively in either direction. Over the past few years, the RMB exchange rate against the U.S. dollar has broken the "7" threshold three times and subsequently returned to within "7" three times. Recently, the RMB has broken the "7" mark against the U.S. dollar for the fourth time since 2019. Yet, as you can see, it has already begun to rebound considerably in the past few days. China is both a major exporter and importer. The saying "no sweetness at both ends of the sugar cane" illustrates that an excessively high or low exchange rate is not beneficial. China operates a market-based, managed floating exchange rate system guided by market supply and demand and referencing a basket of currencies. This mechanism is effective and should continue to be maintained. In other words, the exchange rate is primarily market-determined, with both market and governmental interventions playing their respective roles, resolutely avoiding excessive exchange rate fluctuations.

Currently, although the RMB exchange rate has depreciated to some extent, it has not deviated from the fundamentals. The PBC has also implemented comprehensive measures to manage expectations. The foreign exchange market is operating stably, and the actions of financial institutions, enterprises, and residents regarding foreign exchange transactions are rational and orderly. Market expectations are generally stable. As the saying goes, the current foreign exchange market has neither "big mothers" nor "whales." From the perspective of the macroeconomic situation, the fundamentals for China's long-term positive economic development have not changed. With smooth economic cycles and breakthroughs in high-quality development, China's overall economic performance will continue to improve. From the perspective of the international balance of payments, China's current account surplus is maintained at a moderate level of around 2%, and cross-border capital flows are essentially balanced. Recently, overseas funds have continued to flow into domestic bonds. From the perspective of reserve holdings, China's foreign exchange reserves are ample, and the balance remains the world's largest, exceeding 3 trillion U.S. dollars. Overall, with these "three balances" as support and with the market-oriented exchange rate formation mechanism, the RMB exchange rate will not experience a "one-way market" but will continue to exhibit two-way fluctuations and dynamic equilibrium.

Ensuring that the RMB exchange rate is kept generally stable at an adaptive, balanced level is the policy goal, and also what we expect to happen. The PBC has gained a lot of experience dealing with external shocks in recent years, and has ample policy tools. As such, we are committed and will not be hands off. We have the confidence as well as the conditions and capability to deal with any shocks and maintain the stability of the foreign exchange market. We will make use of policy tools in a reasonable manner according to circumstances. Policy tools are meant to be used, and we will use them if and when necessary. We must be guided by realities when deciding which policy tool will be adopted.

Going forward, the PBC will follow the deployments made by the CPC Central Committee and the State Council, and remain committed to ensuring that the RMB exchange rate is kept generally stable at an adaptive, balanced level. We will take the management of market expectations as our priority, and adopt a holistic approach to stabilize expectations. We will correct pro-cyclical and one-sided market behaviors when necessary to prevent drastic swings in the exchange rate. 

I'd like to invite Mr. Zou to share more information regarding the question about the real estate market.

Zou Lan:

I spoke about the policy adoption and future plans regarding the real estate market during my answer to an earlier question. Now, I'd like to share some more information about real estate credit in the first half of the year. 

The PBC, following deployments made by the CPC Central Committee and the State Council, has worked with relevant departments and local governments to step up efforts on both the demand and supply sides, in order to stabilize the property market. The property market showed stable development in the first half of the year. Real estate has gradually moved to regular operation since April, as the pent-up housing demand of consumers was unleashed at a faster pace in the first quarter, as well as under the influence of seasonal factors. Credit data from the real estate sector also shows such development of the real estate market. 

Real estate development loans have been mainly issued for housing projects, which are usually issued at the beginning of a project, and repaid when the project is completed. The outstanding loans are correlated to commercial housing projects under construction. Developers used to repay the loans with prepayments coming from sales. With increasingly restrictive non-financial liabilities since last year, demand for development loans has increased remarkably. Commercial banks have therefore increased their issuance of development loans. More than 420 billion yuan of development loans was issued in the first half of the year, an increase of 200 billion yuan year on year. This allows developers to complete their projects at a faster pace, and also ensures the delivery of projects. 

Issuance of loans to individual homebuyers correlates with the sales of commercial housing in the same period, while repayment depends on the income of borrowers or the adjustment of other assets. China issued 3.5 trillion yuan in individual housing loans during the first half of the year, an increase of more than 510 billion yuan compared with the level of the same period of last year. It has offered greater support for housing sales, but statistical data shows that the amount of outstanding loans to individual homebuyers is slightly smaller. This is due to the fact that the relation between yield rates of wealth management and interest rates of housing mortgages has changed, and more residents, therefore, decided to use their deposit or reduce other investments to pay off their mortgages early. However, such circumstances do not affect the demand for housing, instead it is actually a kind of adjustment of residents' allocation of assets. The loan prime rate (LPR) fell by 0.45 percentage point, but the margin of mortgage rate rises is fixed for the duration of a contract, leaving those mortgages rates for existing housing issued over the past few years at high levels. This leads to the remarkable increase in early repayment of loans, which has affected the income of commercial banks. We support and encourage commercial banks to alter contract agreements with borrowers through independent consultation, or replace the existing loans with new ones. All of these should be in line with market rules and laws. 

Thank you.