Yicai:

According to the report to the 20th CPC National Congress, science and technology must be regarded as the primary productive force. What has SAFE done to support the financing of sci-tech innovation enterprises? What achievements have been made? What measures will be taken next? Thank you.

Wang Chunying:

Thank you. SAFE has fully implemented the decisions and plans of the CPC Central Committee and the State Council concerning the financial sector serving the real economy, further advanced the reform of foreign exchange management and adopted preferential policies for enterprises, effectively serving the scientific and technological innovation of enterprises, facilitating cross-border financing and lowering financing costs for enterprises. Most sci-tech enterprises, especially micro, small and medium enterprises (MSMEs), are still at the initial stage of their business ventures with relatively small or even negative net assets. The macro-prudential management of cross-border financing is based on the net assets of enterprises and allows enterprises to borrow money at their own discretion according to a certain coefficient. MSMEs, especially sci-tech ones, usually have small or even negative net assets and face difficulties in cross-border financing. In response, we have introduced a series of policies since 2018 and launched cross-border financing facilitation pilot programs in nine provinces and cities, facilitating high-tech enterprises to borrow foreign debt at their discretion up to a certain amount. The basic limit is $5 million, within which high-tech companies in pilot areas can receive foreign debt financing at their discretion.

In May 2022, we expanded the scope of pilot programs to include specialized and sophisticated enterprises that produce new and unique products and increased the number of pilot areas from nine provinces and cities to 17 provinces and cities, covering 80% of high-tech enterprises and specialized and sophisticated enterprises that produce new and unique products nationwide. At the same time, we raised the limit in the original nine provinces and cities to $10 million and set the limit to $5 million in the eight newly added pilot areas. So far, the average amount of foreign debt borrowed by eligible enterprises has reached $5.96 million, with an average interest rate of 2.64%, significantly lowering the financing costs of enterprises.

Next, SAFE will further expand the pilot programs on facilitating cross-border financing, bring more benefits to more enterprises, promote cross-border financing facilitation policies across the country, and raise the limits in all areas where early pilot programs have been launched to $10 million. That's our first consideration. Second, we will ramp up support for sci-tech SMEs and make cross-border financing facilitation policies available to support their innovative development. 

That is all from me in response to your questions. Thank you.

The Paper:

At present, the market believes that the U.S. Federal Reserve is likely to continue raising interest rates, but that it will soon come to an end. In this context, what are your expectations for the trend in China's foreign exchange market in the second half of this year?

Wang Chunying:

Your judgment is the same as ours. That is, the Federal Reserve is likely to continue raising interest rates but that this is coming to an end. Concerning the future trend in the foreign exchange market, to get a comprehensive overview, we should make observations and analysis based on both internal and external circumstances. That is also the characteristic of our foreign-related economy.

In terms of the economic fundamentals, China's economy will sustain its recovery momentum, providing stronger support for the foreign exchange market. Economic fundamentals have been playing a decisive role in influencing the trend of China's foreign exchange market. Since the beginning of this year, the Chinese economy has gradually emerged from the shadow of the pandemic and returned to normal. In the first half of this year, GDP increased by 5.5%. In the future, China will implement macro policies in a targeted and scientific manner, work hard to expand domestic demand, and promote unimpeded flow in the economy, so as to effectively upgrade the quality and appropriately expand the output of our economy. With the slowdown in global growth, the Chinese economy will play a greater role in supporting the foreign exchange market.

From the perspective of the foreign exchange market, the adjustment capacity and adaptability of China's foreign exchange market have significantly improved, effectively mitigating the risk of external shocks. The foreign exchange market has made substantial progress in recent years, making vast improvements and developments in transaction subjects, product transaction types, transaction models, and transaction scale. This progression aptly meets the diversified needs of the market. The flexibility of the RMB exchange rate has increased, and the market understanding of the two-way fluctuations of the RMB exchange rate, along with the concept of exchange rate risk neutrality, is improving. An increasing number of companies are able to better manage exchange rate risks. At the same time, in cross-border transactions, RMB payments now account for about 50%, reducing the risk of currency mismatch. All of these developments have further solidified the internal stability of China's foreign exchange market.

From an external standpoint, the Fed's tightening monetary policy is coming to an end, thereby weakening its spillover effect on the global economy. In recent years, the monetary policies of developed economies, led by the Fed, have been loosened and then tightened, which has induced substantial volatility in the international financial market and intensified adjustments within the international financial market. At present, inflation in the United States has declined from its previous peak, and the high interest rates may add to the rising risks of an economic recession. The market consensus is that the Fed's interest rate hikes are coming to an end, the momentum for the continued strengthening of the U.S. dollar has waned, and the external environment will marginally improve.

Over the years, the foreign exchange management department has successfully and steadily handled multiple rounds of external shocks. During this process, we have accumulated experience and continuously enriched and improved market regulation measures and methods. Therefore, we have the foundation, strength and confidence to maintain the stable operation of China's foreign exchange market. We will firmly guard against the risk of sharp fluctuations in the exchange rate and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level.

That's all. Thank you.