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Read in Chinese

Speakers:

Ruan Jianhong, spokesperson of the People's Bank of China (PBC) and director general of the Statistics and Analysis Department at the PBC

Zou Lan, director general of the Monetary Policy Department at the PBC

Sun Tianqi, director general of the Financial Stability Bureau at the PBC

Chairperson:

Xing Huina, deputy director general of the Press Bureau of the State Council Information Office (SCIO) and SCIO spokesperson

Date:

July 13, 2022 

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Xing Huina:

Friends from the media, good afternoon. Welcome to this press conference held by the SCIO. Today, we will introduce China's financial statistics from the first half of 2022 and answer your questions. Joining us are Ms. Ruan Jianhong, spokesperson of the PBC and director general of the Statistics and Analysis Department at the PBC; Mr. Zou Lan, director general of the Monetary Policy Department at the PBC; and Mr. Sun Tianqi, director general of the Financial Stability Bureau at the PBC.

Now, I'll give the floor to Ms. Ruan for her introduction.

Ruan Jianhong:

Friends from the media, good afternoon. Since the beginning of this year, the PBC has conscientiously implemented the plans of the Central Committee of the Communist Party of China (CPC) and the State Council, strengthened the prudent monetary policy, used monetary policy tools to adjust both the monetary aggregate and structure, risen to the challenges, and worked to serve the real economy and maintain stable macroeconomic performance. Financial statistics show that the first half of this year has witnessed reasonably adequate liquidity, stronger financial support for the real economy, improved credit structure, and a steady decrease in the overall financing costs of businesses. The financial sector has offered higher quality services for the real economy more efficiently.

First, liquidity has remained reasonably adequate and the financial sector has offered stronger support for the real economy. In the first half of the year, the PBC reduced its required reserve ratios by 0.25 percentage point and contributed surplus profits of 900 billion yuan to reasonably increase liquidity supply and enable financial institutions to offer stronger credit support for the real economy. At the end of June, broad money supply (M2) increased by 11.4% year on year, up 2.8 percentage points from a year earlier. In the first half of the year, the aggregate financing to the real economy (AFRE) (flow) was 21 trillion yuan accumulatively, up 3.2 trillion yuan from the same period in 2021; new RMB loans reached 13.68 trillion yuan, increasing by 919.2 billion yuan year on year.

Second, the credit structure has been continuously improved. The PBC has given full play to the guiding roles of structural monetary policy, introduced multiple structural monetary policy tools, supported inclusive loans to micro and small businesses, helped stabilize employment within micro, small, and medium enterprises (MSMEs), and strengthened support for key fields and weak links in the national economy. At the end of June, medium- and long-term loans for manufacturing increased by 29.7% year on year, 18.5 percentage points faster than the growth of loans overall; inclusive loans to micro and small businesses increased by 23.8% year on year, 12.6 percentage points faster than the growth of loans overall; and 52.39 million micro and small businesses received inclusive loans, up 36.8% year on year.

Third, the overall financing costs of businesses dropped steadily. In the first half of the year, the PBC improved the central bank's policy interest rate system, enhanced regulation of deposit rates, and worked to keep the costs of bank liabilities stable. In June, the interest rate on new term deposits was 2.5%, 16 basis points lower than the same period of the previous year. The PBC leveraged the potential of the reform of the loan prime rate (LPR) mechanism, lowering the one-year and five-year LPR by 10 and 20 basis points respectively to reduce the overall financing costs of businesses. In June, the interest rate on new business loans was 4.16%, 34 basis points lower than a year earlier.

Going forward, the PBC will conscientiously implement the CPC Central Committee's instructions to "continue effective COVID-19 control, achieve steady economic performance, and ensure development security," stay committed to the general principle of pursuing progress while ensuring stability, flexibly employ multiple monetary policy tools as needed, use monetary policy tools to adjust both the monetary aggregate and structure, and strengthen support for the real economy to keep major economic indicators within an appropriate range, drive high-quality economic development, and pave the way for a successful 20th National Party Congress. Thank you.

Xing Huina:

Thank you, Ms. Ruan. Next, I would like to invite Mr. Zou to give his introduction. 

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Zou Lan:

I would like to start by briefing you on policy-based and developmental financial instruments, a topic which is of interest to you all.

Since the beginning of this year, due to COVID-19 and unexpected factors such as the Russia-Ukraine conflict, the Chinese economy has been facing some downward pressure and investment in infrastructure has become an important means to maintain stable macroeconomic performance. In accordance with plans made at an executive meeting of the State Council, last month, the PBC increased the credit line of developmental and policy-based banks and strengthened loan support for infrastructure projects that are useful in the long term and feasible in the short term. However, at present, the difficulty in obtaining project capital is one of the main factors hindering infrastructure construction and loan issuance.

At the executive meeting of the State Council on June 29, it was decided that China would adopt policy-based and developmental financial instruments to support the development of major projects. In accordance with the decisions and plans of the CPC Central Committee and the State Council as well as the requirements of the Financial Stability and Development Committee under the State Council, the PBC supported the China Development Bank (CDB) and Agricultural Development Bank of China (ADBC) to respectively set up financial instruments totaling 300 billion yuan. The specific purposes of the financial instruments are: first, shoring up the capital bases of major projects, with the amount not exceeding 50% of the total capital; and second, acting as transit capital for special bonds that cannot be put in place in the short term. For the projects that are to be implemented, financial instruments will quickly and precisely remove impediments caused by lack of capital so that the projects can start as soon as possible. In this way, financial instruments will help maintain stable macroeconomic performance.

Policy-backed and developmental financial instruments invest in line with market principles and make decisions independently in accordance with the law and regulations. They are responsible for their own profits and losses at their own risk, breaking even and earning a meager profit. These instruments focus only on financial investments and exercise the corresponding rights as stockholders instead of involving actual construction and operation of the projects. Meanwhile, they provide exit channels in line with market principles. The projects they invest in should produce good social benefits and be economically feasible. Their investments are guided toward three types of projects, including those in five key areas in the infrastructure sector determined by the 11th meeting of the Central Commission for Financial and Economic Affairs, those in areas such as major scientific and technological innovations, and those can be funded by local government special-purpose bonds.

With well-designed policies, policy-backed and developmental financial instruments, often adopted as temporary measures, can help ensure the availability of capital for major projects instead of resorting to a deluge of strong stimulus policies or over-issuing currency. The instruments can guide financial institutions to provide medium- and long-term, low-cost loan packages, improve the monetary policy's transmission mechanism, ensure stable credit growth, and help produce a combined effect of expanded investment, increased employment, and boosted consumption so as to achieve stable macroeconomic performance. That concludes my introduction.

Xing Huina:

Thank you, Mr. Zou. Now, we welcome questions. Please name the news organization you work for before asking your questions. 

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ThePaper.cn:

How was China's macro leverage ratio in the first half of this year? What does the central bank predict the ratio will be in the second half? Thank you.

Ruan Jianhong:

Thank you. I will answer your questions. The PBC has always paid attention to changes in the macro leverage ratio. Since the fourth quarter of 2020, significant advances have been made in stabilizing the leverage and promoting growth. The macro leverage ratio has been in net decline for five consecutive quarters, leaving valuable policy space for coping with various complex issues in the future. In the global context, after the outbreak of the pandemic, the increase in China's macro leverage ratio was significantly lower than in other major economies. We were able to support the rapid economic recovery with relatively few new debts. At the end of 2021, the leverage ratios of America, Japan, and the Eurozone were 25.7, 39.5, and 21.4 percentage points higher than at the end of 2019, respectively. During the same period, the increase in China's macro leverage ratio was 16.5 percentage points, significantly lower than in other major economies. Meanwhile, China's economic performance continued to lead, and inflation was generally under control. From the perspective of policy effect, the moderate growth of China's macro leverage ratio has supported an optimal combination of "higher growth and lower inflation." All this demonstrates that our macro policies are strong, sound, and effective.

In the first quarter of 2022, China's macro leverage ratio stood at 277.1%, 4.6 percentage points higher than at the end of last year. Since the start of this year, downward pressure on the economy has continued growing because of the unexpected changing international situation and the latest COVID resurgence. The macro leverage ratio, a ratio of a country's total debt to gross domestic product, always increases when economic growth slows. Meanwhile, to respond to the downward pressure and achieve stable macroeconomic performance, we have further planned a package of measures to stabilize the economy. These counter-cyclical macro-regulation policies can affect debt growth in the current period, but their impact on output will not show up until later. As a result, the macro leverage ratio will witness a temporary increase. It is a fair reflection of external shocks, as well as a result of counter-cyclical macro-regulation policies, helping maintain stable macroeconomic performance.

It is clear that despite increasing risks and challenges confronted by China's economy this year, the fundamentals that sustain economic growth remain unchanged. As the country's epidemic situation continues to improve and a package of policies and measures to stabilize the economy begin to deliver, China's economic recovery is gaining steam, creating conditions for maintaining a reasonable macro leverage ratio. Thanks. 

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China News Service:

How are the policy-backed and developmental financial instruments faring? How many funds are expected to be leveraged? What's the next plan? Thanks.

Zou Lan:

Thanks for your questions. Policy-backed and developmental financial instruments are temporary steps to replenish project capital and help stabilize the macro economy. With the concerted efforts of various central departments, local governments, and enterprises, some projects have been incorporated into China's key project pool or are undergoing inclusion. Some projects are improving the provision of land, energy, and other factors of production. Some projects are accelerating their preliminary work, such as investment consultation and feasibility research. All these have provided favorable conditions for financial instrument investment. The CDB and the ADBC have been actively engaged in a batch of mature projects. They will speed up investment according to laws and regulations, thus delivering solid results in capital investment and infrastructure construction.

The timely availability of capital funds is a prerequisite for starting a project. As we have learned, several projects have secured the sources of capital funds. Still, they fall short of the requirement of project capital accounting for 20% of the total investment in the infrastructure sector. The insufficiency or untimely availability of capital funds has hindered the construction of some projects. Financial instruments can be tapped in a short time to meet the project capital demands and start a project as soon as possible. As the proportion of financial instruments that can be used as project capital cannot exceed 50%, the share of financial instruments in each project is estimated to be no more than 10%. Once capital is available in full, the initial policy-backed and developmental medium to long-term credit quota of 800 billion yuan will be dispensed promptly, and non-governmental capital such as commercial bank loans will be leveraged. As a result, efforts will be pooled to deliver solid results in project implementation and stabilize the macroeconomy.

The steady operation of policy-backed and developmental financial instruments needs to be underpinned by a raft of supporting policies on the project, capital, and regulation. The PBC will, per the decisions and arrangements of the CPC Central Committee and the State Council, work together with relevant departments to implement those instruments in an orderly manner. There are mainly three aspects of work.

First, we will accelerate the creation and operation of financial instruments. Supported by various departments, the CDB and the ADBC create financial instruments according to procedures. At the same time, we will formulate regulations and strengthen business process management and risk prevention and control to deliver daily operations, post-investment management, and risk control.

Second, we will establish a list of candidate projects. The NDRC is working with various departments, enterprises managed by the central government, and local governments to sort out a list of sufficient candidates who not only have the potential to yield significant social benefits but also are economically viable. In the meantime, we will see faster work, including project approval, preparatory work before launching a project, and putting in place essential factors of production to create more favorable conditions for the two policy banks to accelerate investment.

Third, we will step up project participation. The two banks will strengthen engagement with candidate projects. For investable projects, we will make independent investment decisions in accordance with laws and regulations and market rules. We will see that capital availability is timely and project demands are duly met. As for those projects that are only investable after some policy coordination, the two banks will provide proper feedback and follow through to see that those projects receive investment as soon as possible after certain requirements are met. Thank you. 

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CNBC: 

I have three questions. The first one is about China's economic performance. Some economists are worried about whether or not there will be economic stagnation. Has the PBC heeded this concern? Have any countermeasures been planned? The second is a recent PBC survey showing that Chinese people's propensity to save is at its highest in 20 years. What measures will the central bank take to boost consumption? The last question: what's the latest development in digital currency? Thanks.

Zou Lan:

Let me answer the first and third questions, and then Ms. Ruan will answer the second one.

In March and April this year, affected by unexpected factors at home and abroad, China's economy faced increasing downward pressure. As a result, some enterprises and citizens lost their income and balance sheets. Against this background, the government increased its support for the real economy. In the first five months, China's infrastructure investment increased by 6.7%, a 0.5 percentage point higher than the growth rate of the total investment. As part of the macro regulation, these are essential measures to help the economy tide over difficulties. 

It should be noted that the impact of the pandemic is temporary. Since May, the COVID-19 pandemic has gradually eased off in China, and a package of policies and measures launched by the State Council to stabilize the economy have taken effect at a faster pace, with the implementation of fiscal policy, monetary policy, and industrial policy having been stepped up. Major economic indicators have improved significantly, and the national economy has seen a notable rebound. According to financial statistics, credit supply has increased significantly. From January to June, loans to corporations rose by 3 trillion yuan compared to the same period of the previous year, and corporate financing was generally good; due to the impact of COVID-19, household loans increased slower than the same period of the previous year, but have also recovered since June. In the future, with COVID-19 being generally under control, it is expected that the macro-economy will maintain a steady recovery, and the corporate and household balance sheets are expected to be gradually repaired and improved, with credit support remaining strong.

In the next stage, we will continue to encourage enterprises and individuals to expand reasonably. What is the most important is to ensure the steady and efficient operation of production and life, maintain the momentum of economic recovery; stabilize revenues, expectations, and confidence of the real sector of the economy; and further enhance the internal momentum for growth and economic vitality. Acting in accordance with the decisions and arrangements made by the CPC Central Committee and the State Council, the PBC will continue to implement its package of policies and measures to stabilize the economy. The PBC will step up efforts to implement a prudent monetary policy to create a favorable monetary and financial environment and ensure that policies will work together to create synergy and keep economic indicators within a reasonable range. To be specific: 

The PBC will maintain reasonably ample liquidity. The PBC will ramp up credit support for the real economy, see that increases in money supply and aggregate financing are generally in step with nominal economic growth and turn over surplus profits to the central budget ahead of schedule. The PBC will guide policy banks and development banks to increase 800 billion yuan of credit loans and set up 300 billion yuan of financial instruments to support infrastructure construction.

In terms of price, the PBC will give full play to the effectiveness and guiding role of LPR reforms and the role of the market-based adjustment mechanism of deposit rates, guiding financial institutions to transmit the effect of the drop in deposit rates to the loan side and further promote financial institutions to reduce real loan rates.

In terms of structure, the PBC will continue to make good use of structural monetary policy instruments and give priority to providing financial support to key areas. Since the second quarter of this year, the proportion of incentive funds provided by the PBC through inclusive loans to micro and small businesses has risen from 1% to 2%. The PBC will fully utilize the instruments for supporting the reduction of carbon emission and targeted re-lending for the clean and efficient utilization of coals, scientific and technological innovation, public accessible elderly care, and transport and logistics, and will continue to support the development of agricultural businesses and micro and small businesses to create new areas of economic growth.

I would like to make a brief introduction about the latest progress in research and development of the digital yuan. In the first half of this year, in line with China's 14th Five-Year Plan, the PBC, together with participating institutions, with the support of the party committees and governments of the pilot areas, has been steadily and prudently advancing trials of the digital yuan. 

First, the PBC successfully completed pilots of its digital yuan in scenarios, making it the highlight of China's science and technology achievements during the Beijing 2022 Winter Olympics and Paralympics.

Second, the PBC has prudently expanded the pilot areas. Approved by the State Council, the pilot areas have been expanded from the original "10+1" areas to 23 areas in 15 provinces and municipalities. Shenzhen, Suzhou, Xiong'an New Area, and Chengdu have canceled whitelist restrictions and absorbed the Industrial Bank as a new designated operator. 

Third, the PBC has been working on making innovations in application scenarios, extending the reach of digital yuan services. Focusing on maintaining stable macroeconomic performance, the digital yuan has played an active role in ensuring people's wellbeing, stimulating consumption, expanding domestic demand, and ensuring stable growth by means of its distinctive functions, such as smart contracts.

Fourth, the PBC has actively engaged in international exchanges and cooperation, expanding its circle of friends in the use of digital yuan. As of May 31 this year, the transaction volume of the digital yuan in the pilot areas of 15 provinces and municipalities had totaled about 264 million, with transaction value approximating 83 billion yuan. The number of merchant stores supporting digital yuan payments has reached 4.57 million.

Next, the PBC will expand the pilot programs to more cities in a prudent and orderly manner, strengthen the scenario construction and application innovation, carry out research on major issues, and deepen international exchanges and cooperation.

That's all from me for your first and third questions. 

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Ruan Jianhong: 

I will answer the second question. According to the depositor survey conducted by the PBC in the second quarter, 58.3% of people surveyed preferred more savings deposits, up 3.6 percentage points from the previous quarter. Meanwhile, 17.9% were inclined to make more investment, down 3.7 percentage points from the previous quarter. The marginal rise in people's willingness to save and the decrease in their willingness to invest was mainly due to the resurgent COVID-19 cases in some parts of China and the increase in people's preference for liquidity. In the meantime, greater volatility in the capital market has lowered people's risk appetite. It is expected that as the pandemic's impact further eases, people's willingness to invest will gradually recover, and their willingness to consume will steadily pick up.

Since the start of this year, household deposits in China, actually not only household deposits but also including enterprise deposits, have seen a significant increase, with deposit interest rates dropping slightly. At the end of June, household deposits stood at 112.8 trillion yuan, up 10.3 trillion yuan from the beginning of this year, which was an increase of 2.9 trillion yuan over the same period of the previous year. Enterprises deposits were 74.9 trillion yuan, rising by 5.3 trillion yuan from the beginning of this year, which was an increase of 3.1 trillion yuan compared to the figure of the same period of the previous year. Financial institutions have increased support for the real economy through loans, bond investments, and other forms, and the corresponding derivative deposits have increased. In addition, in the first half of the year, China issued VAT credit refunds on a large scale, increasing the deposits in the real sector of the economy. 

In June, the interest rates on newly absorbed time deposits dropped significantly to 2.5%, down 16 basis points year on year. The drop in deposit rates is conducive to enhancing financial support for the real economy, including the sustainability of consumption growth.

In the future, both household and enterprise deposits are expected to grow steadily. At the same time, the PBC will continue to deepen reforms to strengthen the market's role in setting interest rates, improve the market-based interest rate mechanism and the transmission mechanism, as well as the central bank's policy interest rate system to promote a reduction in overall financing costs of enterprises. Thank you. 

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People's Daily:

We noticed that the PBC introduced a series of structural monetary policy instruments and increased financial support for key areas this year. What effect have these instruments delivered? What's the plan in the future? Thank you.

Zou Lan:

I'll answer your questions. Structural monetary policy instruments have attracted a lot of attention. Just now, Ms. Ruan and I mentioned this topic briefly, and here I would like to give you a more detailed introduction.

Since the beginning of this year, the PBC has introduced three new structural monetary policy instruments. The first is a science and technology innovation re-lending program, which aims to support high-tech enterprises, specialized and sophisticated small and medium-sized enterprises that produce new and unique products, national technology innovation demonstration enterprises, and single-product champion enterprises. The second is a re-lending arrangement for elderly care services, which focuses on supporting eligible institutions to provide publicly-accessible elderly care services and increase their supply. The third is a re-lending program for transport and logistics, which mainly helps highway cargo transport enterprises, truck drivers, and other businesses and individuals greatly affected by the epidemic. In Q4 of last year, the PBC introduced carbon-reduction supporting tool funds and special re-lending to support the clean and efficient use of coal, which are both phased tools. For long-term ones, we issued re-lending and rediscount policies to support agricultural and small enterprises. At present, the toolbox of structural monetary policy has been enriched and improved.

Generally speaking, structural monetary policy instruments focus on key sectors, adopt reasonable and moderate approaches, and build up ample room for maneuver. Meanwhile, a new working mechanism was set up, under which financial institutions are allowed to independently lend money and manage ledgers, the PBC should conduct reimbursement based on an ex-post basis and place a cap on total lending, and relevant departments should specify the purpose of lending and conduct random checks. By doing so, financial institutions are encouraged to optimize their credit structure, and so that their lending can tilt toward key areas, including inclusive finance, green development, and scientific and technological innovation.

So far, the PBC had already allocated 182.7 billion yuan in carbon-reduction supporting tool funds and helped banks to offer 304.5 billion yuan of loans on carbon reduction, which led to over 60 million metric tons of carbon emission reductions. A clean-coal financing program has lent 43.9 billion yuan to businesses. The three new structural monetary policy instruments will be issued on a quarterly basis and will open for application for the first time in July. Currently, the PBC is fast-tracking related procedures.

Next, in accordance with the strategic deployments of the CPC Central Committee and the State Council and the arrangements of a State Council executive meeting, the PBC will continue to make full use of the dual functions of all structural monetary policy instruments so as to better bolster key areas and weak links in the economy. Thank you. 

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Bloomberg: 

I have two questions. My first question is, do you see any need or room for the LPR to be lowered in the second half of this year? My second question is, considering the outbreak of civil unrest in Henan due to people being unable to access their savings and the increasingly bad financial position of local government financing vehicles, are you worried about financial risks in the banking system? Do you expect more problems like Henan, and are you worried about the reports that more and more people aren't paying their mortgages? Thank you.

Zou Lan:

In regard to your first question, I will give an introduction about the recent work and effects of the market-based interest rates reform.

In April this year, the PBC guided the establishment of a market-based mechanism to adjust deposit rates in order to promote the further marketization of deposit rates. Members of interest rates self-regulatory mechanism can independently determine their deposit rates reasonably by referring to bond market interest rates represented by yields on China's 10-year government bonds and loan market interest rates represented by one-year LPR. Since the mechanism was established, banks have adjusted their deposit rates based on changes in market-based interest rates. According to our preliminary statistics, in June, the weighted average interest rate of new deposits in banks was about 2.32%, 0.12 percentage points lower than that in April before the adjustment. The establishment of market-based deposit rates adjustment mechanism has significantly improved the pricing capability of market-based deposit rates, maintained a good and competitive deposit market order, stabilized the cost of bank debt, and prompted the reduction of real loan rates so as to better support the development of the real economy.

At the same time, in accordance with the decisions and arrangements of the CPC Central Committee and the State Council, the PBC has established and improved the formation and transmission mechanisms for market-oriented interest rates in recent years. We have formed a transmission mechanism where the market interest rates and central bank's guidance affect LPR and then influence loan and deposit interest rates, thus significantly improving the transmission efficiency of monetary policy. Next, the PBC will continue to deepen market-based interest rates reform, consistently unleash the potential of LPR reform, give play to the mechanism of market-based adjustment of deposit interest rates, fully leverage the role of the interest rate self-discipline mechanism, maintain orderly market competition, and promote a further reduction in the actual interest rates of loans to make the market entities benefit from the actual decline in overall financing costs. That's all for my answer, and I think a perspective from the overall developments in market-oriented interest rates may help explain it more clearly. 

Sun Tianqi:

I will answer your second question. Since some rural banks in Henan province were found to be a part of a suspected financial scam, the PBC has actively cooperated with local governments and regulatory authorities to deal with the problem correctly. It has guided its branches to fulfill their duties of maintaining regional financial stability and worked hard to deliver liquidity risk monitoring and emergency support. Overall, China's financial risks have been mitigated and controllable, with 99% of banking assets within the safe boundary. By the end of 2021, the total assets of China's banking institutions reached 345 trillion yuan, accounting for 90% of the total assets of the entire financial industry. It is said that "banking stability means financial stability." The PBC's credit rating results in the fourth quarter of 2021 showed that among the 4,398 participating banking institutions, 4,082, or 93%, were rated at levels of 1-7 and within the safe boundary, making up 99% of total assets of the participants. Among them, 24 large banks have always kept their ratings within the excellent and good levels of 1-5, with their assets accounting for 70% of the total and serving as the ballast of the entire financial industry. There were 316 high-risk institutions rated at 8-D, accounting for 7% of the participating banks but only 1% of the total assets. That is to say, the vast majority of small and medium-sized banks are within the safe boundary in the central bank's credit ratings. Given the data, I hope friends from the media can also report the 4,000-plus banking institutions with favorable ratings while covering the high-risk ones to jointly give all parties an objective, comprehensive and accurate judgment of the overall financial risks. Thank you. 

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China Media Group: 

My question is about the newly added credit and social financing. What have been the changes in the general trends in financial data starting from this year? What are the structural features of the newly added credit and social financing increment? What are the expected changes in the field in the second half of this year? Thank you.

Ruan Jianhong:

I will answer your question. The data in the first half of this year showed that the current financial operations are stable on the whole, the financial aggregate grows steadily, the liquidity is reasonably ample, and the support for the real economy is further strengthened. In the first half of this year, new RMB loans registered 13.68 trillion yuan, 919.2 billion yuan more than the same period last year. An additional 21 trillion yuan of social financing was achieved, 3.2 trillion yuan more than the same period last year. 

Regarding the structure of social financing, there are three notable features. First, financial institutions are increasing their credit support for the real economy. In the first half of this year, RMB loans issued by financial institutions to the real economy increased by 13.58 trillion yuan, 632.9 billion yuan more than the same period last year. Second, the direct financing of enterprises grew steadily. Net enterprise bond financing and stock financing amounted to 1.95 trillion yuan and 502.8 billion yuan, respectively, 391.3 billion yuan and 7.3 billion yuan more than in the same period last year. Third, the financial system actively complied with fiscal policies, and the special-purpose bond financing of local governments increased remarkably. Net government bond financing stood at 4.65 trillion yuan, 2.2 trillion yuan more than the same period last year, with special-purpose bonds financing of local governments reaching 3.39 trillion yuan, 2.23 trillion yuan more than the same period last year. 

In terms of the loan structure, first, enterprises and public institutions are getting more support. In the first half of this year, RMB loans to enterprises and public institutions went up by 11.4 trillion yuan, 3.03 trillion yuan more than the same period of last year. Second, the growth of loans slowed in the household sector, indicating that the repeated resurgence of the epidemic in the first half of the year had impacted household consumption to some degree. Household loans increased by 2.18 trillion yuan, 2.39 trillion yuan less than the same period last year. Among these, the consumer and business loans grew by 646.8 billion yuan and 1.54 trillion yuan, respectively, 2.13 trillion yuan and 264.4 billion yuan less than the same period last year. 

Next, the PBC will employ various monetary policy tools in a timely and flexible manner to better play their dual roles of adjusting both the monetary aggregate and structure. It is expected that the credit supply and social financing scale will both maintain steady growth. Thank you. 

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Yicai:

How will the PBC judge the economic trend in the year's second half? How will monetary policy support and stabilize the economy in the year's second half? Are there enough tools to deal with unexpected changes? Are there any plans for the interest rate or RRR cuts? Thank you.

Zou Lan:

Let me answer your questions. Since May, under the leadership of the CPC Central Committee and the State Council, with the overall improvement of the domestic epidemic situation, the State Council has accelerated the implementation of a package of measures to stabilize the economy. Fiscal policy, monetary policy, and industrial policy have all stepped up implementation, the national economy has tended to improve, and major economic indicators have marginal improvement. However, the foundation for recovery is not yet solid, and the economic operation in the year's second half still faces great uncertainty and instability. Hard efforts are still needed to stabilize the economy, and at the same time, attention must be paid to changes in the inflation situation.

In recent years, we have adhered to a normal monetary policy, leaving sufficient policy space and tool reserves to deal with new challenges and changes beyond expectations. In the second half of the year, the PBC will continue to implement a sound and prudent monetary policy and accelerate the implementation of the established policy measures, including implementing various structural monetary policy tools introduced earlier and guiding financial institutions to enhance the ability of providing financial services to serve the real economy following the market-based and rule-of-law principles. We will guide policy-oriented development banks to implement an additional 800 billion yuan in the scale of credit loans and set up financial tools of 300 billion yuan to support infrastructure construction. We will complete the annual turn-in of surplus profits to the central government ahead of schedule to help stabilize the overall economy, stabilize employment and ensure people's living standards.

Regarding the RRR cut and interest rate cut you asked about, at present, the weighted average interest rate on 7-day repos between depository institutions in the interbank market, which is what we often call DR007, is currently around 1.6%, which is lower than the rate in the open market operation. Liquidity is maintained at a level that is reasonably sufficient but slightly excessive. From January to June, the corporate loan interest rate was 4.32%, a year-on-year decrease of a 0.31 percentage point, which continues to stabilize with some declines, hitting a new low since statistics. In the future, in accordance with the deployment of the CPC Central Committee and the State Council, the PBC will comprehensively consider economic growth, price conditions, and other fundamentals, rationally match monetary policy tools, maintain reasonably ample liquidity, further promote financial institutions to reduce corporate financing costs, and create a suitable monetary and financial environment for consolidating economic recovery.

We paid great attention to the accelerated tightening of the monetary policy in major economies. We have taken forward-looking measures such as adjusting the foreign exchange deposit reserve ratio and strengthening macro-prudential regulation of cross-border capital flows in the early stage, reducing the negative spillover impact caused by changes in the external environment to a certain extent. The RMB exchange rate fluctuated in two ways and remained at a reasonable level, and cross-border capital flows were generally stable. At the same time, as a super-large economy, China's domestic monetary and financial conditions are mainly determined by domestic factors. The monetary policy will continue to adhere to the orientation of self-centeredness, considering internal and external balance. Thank you. 

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China Daily:

In the first half of the year, in which areas did the PBC increase risk prevention and management? What results have been achieved? What is the risk management situation of high-risk financial institutions? What is the focus of work in the second half of the year? Thank you.

Sun Tianqi:

Thank you for your questions. Under the strong leadership of the CPC Central Committee and the State Council, the PBC, together with relevant departments and local governments, followed the basic principles of maintaining overall stability, ensuring coordination, implementing category-based policies, and defusing risks through targeted efforts, fought a tough battle to prevent and defuse major financial risks, and achieved important phased results. The rapid rise in the macro leverage ratio has been effectively curbed. We resolutely disposed of high-risk enterprise groups and high-risk financial institutions, comprehensively cleaned up and rectified the financial order, and effectively reduced the risks of "shadow banking." Financial anti-corruption efforts have been significantly intensified. We strengthened our financial services to serve the real economy and effectively responded to many challenges, such as the COVID-19 pandemic. On the whole, financial risks are restrained and generally controllable, while 99% of banking assets are within the security boundary, and the central bank ratings of most small and medium-sized banks are within the security boundary.

Facing the current complex international and domestic economic and financial situation, financial administration departments must maintain a high degree of vigilance against various financial risks, further lay a solid foundation for preventing and defusing financial risks, and firmly hold the bottom line that systemic financial risks do not occur. The first is to further improve the effectiveness of micro-prudential supervision, continue strengthening the conduct supervision of the financial industry, and strengthen protections for consumers and investors. The second is implementing different classified policies and continuously resolving key financial institutions' risks. The third is to discover early all kinds of illegal business activities that the people detest deeply, identify them accurately, and act resolutely. The fourth is to continue to replenish the capital to small and medium-sized banks through various channels such as local government special bonds, improve corporate governance, and reduce the number of high-risk financial institutions. We will strive to reduce the number of high-risk financial institutions nationwide to fewer than 200 by the end of the 14th Five-Year Plan period. Thank you. 

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21st Century Business Herald:

Why can M2 growth rate maintain a high level? How should we view it? Thank you.

Ruan Jianhong:

I will answer it. At the end of June, the M2 money supply reached 258.15 trillion yuan, an increase of 11.4% year on year, and the growth rate was 0.3 and 2.8 percentage points higher than that at the end of last month and the same period of the previous year, respectively. In terms of deposits, in the first half of this year, RMB deposits increased by 18.82 trillion yuan, a year-on-year increase of 4.77 trillion yuan.

At present, RMB deposits have increased more, and the growth rate of M2 is relatively high, mainly due to the efforts of the financial system to serve the real economy, which leads to an increase in derived currencies.

First, financial institutions support the earlier issuance of government bonds. In the first half of the year, the bond investment of financial institutions increased by 4.68 trillion yuan, a year-on-year increase of 2.82 trillion yuan, of which investment in government bonds increased by 2.72 trillion yuan.

Second, various loans increased steadily. In the year's first half, various loans increased by 13.68 trillion yuan, a year-on-year increase of 919.2 billion yuan.

Third, the central bank turned over 900 billion yuan of profits to increase the financial resources available to the government. After fiscal expenditure, the M2 increased by about 0.4 percentage point.

In addition, this year's monetary and fiscal policy was coordinated well, and the pace of fiscal expenditure accelerated, promoting the increase in the M2 growth rate. In the first half of the year, fiscal deposits increased by 506.1 billion yuan, a decrease of 433.8 billion yuan year on year. Thank you. 

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Red Star News:

In the first half of the year, what measures have been introduced to help enterprises overcome difficulties and support the development of small, medium, and micro enterprises? How well do they work in stabilizing the economy? Will there be other policies in the next stage? Thank you.

Zou Lan:

I will take your question. Since the beginning of this year, in accordance with the decisions and plans of the CPC Central Committee and the State Council, the PBC has taken the initiative to use monetary policy tools to adjust both the monetary aggregate and the monetary structure early on, increase liquidity provision, strengthen the use of structural monetary policy tools, and enhance the capacity of financial institutions serving the real economy. In addition, we have introduced several policy measures to fully support steady economic growth, keep the operations of market entities stable, and promote employment stability.

First, we have strengthened policy support for enterprises in industries affected by the epidemic. Cooperating with relevant departments, we have issued 23 measures to provide financial services for epidemic prevention and control and to promote economic and social development. We have issued other policies and measures to help businesses in difficulty recover in the service sector, including the restaurant industry. We have also scaled up support for small, medium, and micro enterprises. By implementing measures such as deferred repayment of principal and interest, we have supported businesses facing difficulties in offsetting the impact of COVID-19.

Second, we have strengthened the multi-level coordination between government, banks, and enterprises. We have strengthened coordination with the National Development and Reform Commission (NDRC) and the Ministry of Industry and Information Technology (MIIT) to promote the sharing and application of credit information and smooth the connection between banks and enterprises through in-person visits and news feed on online service platforms. A national list of 648,000 companies in industries and core supply chain companies affected by the epidemic has been drawn up, with a total of 9.6 trillion yuan of loans offered.

Third, we have deeply carried out projects to improve the financial service capabilities of small, medium, and micro enterprises. We have promulgated a notice on promoting the establishment of a long-term mechanism for financial services for small and micro enterprises to see that they are confident, willing, and able to grant loans, further optimized resource allocation, and improve policy arrangements such as ensuring that those who have fulfilled their duties are not held accountable, increasing the tolerance for non-performing loans, internal fund transfer pricing, and differentiated evaluation of the performance. We have strengthened technological empowerment and product innovation and enhanced financial institutions' willingness, ability, and sustainability to serve SMEs. 

Fourth, we have expanded diversified financing channels. We have supported the issuance of special financial bonds for small and micro enterprises. In the first half of the year, a total of 215.5 billion yuan was issued, which effectively broadened the sources of credit funds for small and medium-sized banks. The Credit Reference Centre of the PBC promoted the Account Receivables Financing Service Platform and gave play to the role of the supply chain bill platform. At the end of June, a total of 365,000 account receivables financings were facilitated, with an amount of 16.7 trillion yuan.

In general, the quality and efficiency of financial services for the real economy have been further improved, and inclusive loans to small and micro enterprises continued to "increase in volume, expand in coverage, and decrease in price." Ms. Ruan also introduced relevant data just now. In May, the weighted average interest rate of newly issued inclusive loans to small and micro enterprises was 5.19%, a decrease of 5 basis points from the previous month.

Next, the PBC will strengthen cooperation with the NDRC, MIIT, and the Ministry of Finance, continue to thoroughly implement policies that have been issued and increase support for the development of industries and enterprises affected by the epidemic, especially small and micro enterprises. These measures will boost the confidence of market players and help maintain stable macroeconomic performance. Thank you.

Xing Huina:

If there are no more questions, today's press conference will be concluded here. Thank you to the three speakers and friends from the media. Goodbye.

Translated and edited by Liu Qiang, Zhou Jing, Xu Kailin, Huang Shan, Xu Xiaoxuan, Zhang Rui, Wang Yiming, He Shan, Lin Liyao, Wang Qian, Zhang Liying, Yang Xi, Li Xiao, Li Huiru, David Ball, Tom Arnsten, and Jay Birbeck. In case of any discrepancy between the English and Chinese texts, the Chinese version is deemed to prevail.