CCTV:

What are the expectations and policies of the PBC in response to interest rate hikes by the U.S. Federal Reserve and its potential spillover effects? Additionally, given the grim situation in relation to foreign trade, will the RMB continue its trend of appreciation in the early part of the year? Thank you. 

Yi Changneng:

Since 2022, major developed economies, including the U.S., the eurozone and the U.K., have significantly tightened their monetary policies by aggressively raising interest rates. This has tightened the global financial system and caused emerging market economies to experience pressure from cross-border capital outflows. The market has certain expectations of interest rate hikes by the U.S. Federal Reserve in 2023. China has a big economy that is hugely resilient. In response to the COVID-19 pandemic, China has implemented normal monetary policies, instead of resorting to a deluge of strong stimulus policies, to maintain reasonably ample liquidity and ensure stable financial support for the real economy. China's financial system has shown great initiative and stability. Moreover, expectations of the RMB exchange rate are stable. All these are conducive to buffering and dealing with external risks, especially spillovers from interest rate hikes by developed economies. Generally speaking, developed economies' adjustments to monetary policies have a limited impact on China and may have a greater impact on other small emerging market economies. 

Next, the PBC will continue to adopt a comprehensive approach and react to developed economies' adjustments to monetary policies actively and prudently. We must make economic stability our top priority and focus on the domestic economic situation. We will ensure the proper intensity and pace of prudent monetary policies based on the domestic economic situation. In addition, we will increase the flexibility of the RMB exchange rate to enhance its function of adjusting the macroeconomy and international balance of payments. We will guide market entities to establish risk-neutral awareness, and strengthen unified, macroprudential management of cross-border capital flows. We will also strengthen expectation management and keep the RMB exchange rate generally stable at an adaptive, balanced level. In particular, we will guide enterprises to do a good job at hedging and establishing risk-neutral awareness.

Regarding the RMB exchange rate, the Chinese yuan has gradually appreciated against the U.S. dollar since mid-November 2022 as the economic stimulus policies started to take effect, and China's COVID-19 prevention and control measures have been optimized and financial measures to support the property sector have been introduced, as well as the market expected slower interest rate hikes from the Federal Reserve, and the dollar index retreated from its highs. The RMB's spot exchange rate against the U.S. dollar opened below 7.0 on Dec. 5.

The current and future trend of the RMB exchange rate could be affected by multiple factors, such as the domestic and international economic and financial situation, the country's balance of payments, market risk appetite and so on. It is inevitable that exchange rate forecasting in the short term is inaccurate. Overall, we have a solid foundation to maintain the basic stability of the RMB exchange rate. Recently, China's economic recovery has been on track with the nation constantly optimizing COVID-19 prevention measures. Moreover, China has basically maintained price stability in the face of high global inflation. The growth of China's trade surplus is likely to slow down, considering that the economic sentiment index of major economies has declined. The RMB exchange rate will remain basically stable under the influence of a variety of factors. Through years of financial reform and opening-up, China has greatly increased the depth and breadth of its foreign exchange market. The RMB exchange rate has become more flexible, market expectations have been kept stable, cross-border capital flows have been made orderly and the basic balance in international payments has been maintained. As a result, the RMB exchange rate will continue to remain basically stable at an adaptive and equilibrium level.

Thank you.

Shou Xiaoli:

Two more questions, please.