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Read in Chinese
Speakers:
Mr. Liu Guoqiang, deputy governor of the People's Bank of China (PBC)
Ms. Ruan Jianhong, spokesperson of the PBC and director general of the Statistics and Analysis Department of the PBC
Mr. Zou Lan, director general of the Monetary Policy Department of the PBC
Chairperson:
Ms. Xing Huina, deputy director general of the Press Bureau of the State Council Information Office (SCIO) and spokesperson of the SCIO
Date:
July 14, 2023
Xing Huina:
Ladies and gentlemen, good morning. Welcome to this press conference held by the State Council Information Office (SCIO). Today, we are joined by Mr. Liu Guoqiang, deputy governor of the People's Bank of China (PBC). Mr. Liu will brief you on China's financial statistics in the first half of 2023 and take your questions. Also joining us today are Ms. Ruan Jianhong, spokesperson of the PBC and director general of the Statistics and Analysis Department of the PBC; and Mr. Zou Lan, director general of the Monetary Policy Department of the PBC.
Now, I will give the floor to Mr. Liu Guoqiang.
Liu Guoqiang:
Friends from the media, good morning. Since the beginning of this year, the PBC has followed the guidance of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, and resolutely implemented the decisions of the Central Committee of the Communist Party of China (CPC) and the State Council. It has remained committed to the general principle of pursuing progress while ensuring stability, made prudent monetary policy more targeted and effective, strengthened counter-cyclical regulation, and worked to improve the overall economic performance. Throughout the first half of this year, the financial data saw a notable increase in the first quarter, followed by a slowdown in April and May, and a subsequent rise in June. In general, the financial sector remains stable with reasonably ample liquidity and a constantly improving credit loan structure. The financing costs of the real economy have fallen steadily, and the financial sector's enabling role for economic growth has continued to strengthen.
In terms of the total amount, we have maintained a proper and adequate level of liquidity and stabilized financial support to bolster the real economy. In the first half of this year, the PBC cut the reserve requirement ratio (RRR) for financial institutions by 0.25 percentage point. The move has unleashed long-term liquidity, enhanced the stability and sustainability of the growth of credit loans, and effectively served the real economy. At the end of June, the broad measure of money supply (M2), the existing amount of aggregate financing for the economy, and RMB loans had increased by 11.3%, 9% and 11.3% year on year, respectively. In the first half of the year, the additional amount of aggregate financing for the economy amounted to 21.55 trillion yuan, 475.4 billion yuan more than the previous year; and RMB loans increased by 15.73 trillion yuan, 2.02 trillion yuan more than the previous year.
In terms of structure, the composition of credit loans keeps improving, which has enhanced the growth momentum of economic development. Since the beginning of this year, the PBC has fully leveraged the dual functions of its monetary policy's aggregate and structure. Its structural monetary policy is well focused, reasonably allocated, and properly implemented. The PBC continues to introduce inclusive loans granted to micro and small enterprises (MSEs) and the loan support scheme which ensures the delivery of housing projects. The PBC will keep strengthening support for key areas and weak links in the national economy, including inclusive financing, sci-tech innovation, green development and infrastructure. At the end of June, the balance of medium and long-term loans granted to the manufacturing sector surged 40.3% over the previous year, 29 percentage points higher than the growth rate of various loans; that granted to the infrastructure sector increased by 15.8% year on year, 4.5 percentage points higher than various loans; and that granted to small and medium-sized enterprises (SMEs) that produce new and unique products increased by 20.4% year on year, 9.1 percentage points higher than various loans. The balance of inclusive loans granted to MSEs increased by 26.1% year on year, 14.8 percentage points higher than various loans. The number of entities granted such inclusive loans reached 59.35 million, close to the 60-million-threshold, up 13.3% year on year. In the first half of the year, the total amount of personal housing loans granted increased by 516.4 billion yuan year on year.
In terms of interest rate, the financing costs of the real economy have dropped steadily. In the first half of the year, the PBC kept fine-tuning market-oriented interest rate formation as well as the transmission mechanism for interest rates, and optimized its policy interest rate system. The PBC leveraged the reform effect and guiding role of the loan prime rate (LPR), and lowered the one-year and five-year LPR by 10 base points, which resulted in a steady decline in the costs of enterprises' financing activities and residents' credit loans. In the first half of the year, the weighted average interest rate of newly issued enterprise loans was 3.96%, 25 base points lower than the same period last year; and that of personal housing loans was 4.18%, 107 base points lower than the same period last year.
Moving forward, the PBC will keep implementing a prudent monetary policy in a targeted and effective manner. It will make good use of cross-cyclical adjustments and fully leveraging the effectiveness of monetary and credit policies. The PBC will coordinate efforts to promote the continued improvement in economic performance, consistently enhance the growth momentum, improve public expectations, defuse risks and hidden dangers, and facilitate a positive economic cycle.
Thank you.
Xing Huina:
Thank you, Mr. Liu. Now the floor is open for questions. Please identify the media organization you work for before asking your questions.
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Asahi Shimbun:
China's economy has continued to recover since the beginning of this year, yet experts have pointed out the recovery has been slower than anticipated. How does the PBC perceive the speed of recovery for the second half of this year? What financial measures should be introduced during this period?
Thank you for your questions. Currently, the macroeconomic data is experiencing a slowdown, which has sparked heated discussion. Indeed, we should not evade questions that truly exist. At the same time, we also believe that analyzing the macroeconomy requires not only a question-oriented approach, but also a systemic mindset, and we need to give attention to the positive side. For example, financial data has seen a significant rebound with multiple highlights, and the overall macroeconomic performance has also achieved an upturn. First, the financial sector continues to serve as a crucial contributor to infrastructure project investment. At the end of June, medium- and long-term lending to the infrastructure sector increased 15.8% year on year, which has effectively facilitated the construction of major projects. Over 70% of the 739.9 billion-yuan policy-backed and developmental financial instruments have been allocated. The purchasing managers' index (PMI) for the construction sector remained high in June, at over 55%. Second, residents' loans experienced reasonable growth with a steady decline in costs, which has contributed to a steady recovery in consumption. In the first half of this year, short-term personal loans grew by 300.9 billion yuan, a year on year increase of 401.9 billion yuan. The mortgage rates for personal housing loans was 4.11% in June, a decrease of 0.51 percentage point year on year. The demand for big-ticket consumer goods continues to be unleashed. Online consumption saw rapid growth, and the consumption of services keeps picking up. Since July, the passenger flow by railway and air amid the summer travel rush increased significantly compared with the same period of 2019. Third, targeted support for key areas, such as private MSEs and the manufacturing sector, has been strengthened, while both the overall export and private enterprises have stayed resilient. At the end of June, the balance of inclusive loans granted to MSEs increased by 26.1% year on year. The balance of medium and long-term loans allocated to the manufacturing industry surged 40.3% compared with the previous year. As the momentum of the global economic recovery wanes and the global trade volume registers negative growth, many countries are seeing a decline in exports, with some experiencing a drastic drop. Despite the situation, China's dollar-denominated exports of goods still achieved positive growth in the first half of this year. Notably, the exports of private business brands increased by 11.5%.
The fundamentals driving China's long-term growth remain robust, and we should have unwavering confidence in achieving high-quality development. The challenges confronting the current economy are normal phenomena in the post-pandemic recovery process. Globally, both consumption and economic recovery are expected to be gradual, with a general belief that it takes about a year for normality to be restored. Meanwhile, in China, the stable transition from the pandemic has spanned approximately six months, with positive trends already evident in economic cycles, residents' incomes, and consumer spending. While the global political and economic situation remains complex, China remains robust domestic development potential. Additionally, overall market expectations remain steady, effectively navigating external environmental shifts. From a long-term perspective, the economy is increasingly leaning towards high-quality development. The impetus from technological innovation continues to strengthen, green transformation progresses steadily, the consumer market gradually heats up and upgrades, and the momentum for high-quality development keeps accumulating. This presents a good opportunity for structural adjustments in the economy.
Against the backdrop of high external economic inflation, prices in China have remained relatively stable. Over the recent months, we have noticed a downward trend in prices, although deflation has not occurred. The year-on-year increase in the Consumer Price Index (CPI) has shown fluctuations and is projected to continue its decrease into July. This is primarily attributable to temporary factors such as lag in demand recovery and base effects. Our macroeconomic environment is witnessing a steady recovery, with M2 experiencing sustained growth, setting it apart from typical deflationary periods in history. Therefore, it can be affirmed that deflation is not currently taking place, and there is no risk of deflation in the second half of the year. Our monetary conditions are reasonable and moderate, and residents' expectations remain steady. As policy measures continue to yield results, the gap between supply and demand will narrow further, and the CPI is projected to ascend gradually after August. The overall trend of the CPI for the entire year is expected to follow a U-shaped pattern. Prices are likely to decline initially and then rise throughout the year, approaching 1% by the end of the year.
In accordance with the arrangements of the CPC Central Committee and the State Council to intensify macroeconomic policy regulation, stimulate effective demand, and enhance policy reserves, a prudent monetary policy will persist in being precise and potent. There remains ample policy space to address unexpected challenges and changes. Concerning overall quantity, we will reasonably manage the pace and intensity in response to changing circumstances, bolster countercyclical adjustments, and create a favorable monetary and financial environment for continuous economic recovery and improvement. Regarding prices, we will strive for steadily decreasing financing costs for the real economy, effectively supporting the expansion of potential demand. Structurally, our focus will be on key areas, adopting a reasonable and moderate approach, and discerning the appropriate timing for advancement or withdrawal. Financial support for key sectors such as small- and micro-sized private enterprises, green innovation, and others will continue to grow. The 16 supportive measures intended to ensure the steady development of the real estate sector have been definitively extended. Previously introduced policy measures are starting to take effect, and we need to exhibit patience and confidence in achieving sustained and stable economic growth. Thank you.
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Cover News:
How would you comment on the credit supply situation in the first half of the year? Which sectors have received the majority of credit allocations? What changes are expected in terms of the overall quantity and structure of credit in the next steps? Thank you.
Ruan Jianhong:
Thank you for your questions. In the first half of the year, financial institutions saw a 15.73 trillion yuan increase in total loan issuance, which represents a year-on-year increase of 2.02 trillion yuan. This indicates that the financial system has further reinforced its support for the real economy.
In the first half of the year, the primary drivers of loan growth were enterprises and public institutions. Loans to these entities increased by 12.81 trillion yuan, a year-on-year increase of 1.42 trillion yuan, accounting for 81.5% of total credit growth. Meanwhile, household loans rose by 2.8 trillion yuan, a year-on-year increase of 572.3 billion yuan. This growth in household loans was largely due to increases in personal business loans and short-term consumer loans. Specifically, personal business loans increased by 2.3 trillion yuan, marking a year-on-year increase of 759.3 billion yuan, and personal short-term consumer loans increased by 300.9 billion yuan, a year-on-year increase of 401.9 billion yuan.
When examining the distribution of loans by industry, it's clear that the bulk of the increased loans were primarily directed toward key sectors such as manufacturing and infrastructure. The real estate industry also demonstrated a sustained recovery in loan growth, contributing to further optimization of the loan structure. Specifically:
The growth rate of medium- to long-term loans in the manufacturing sector has stayed at a relatively high level. By the end of June, these loans in the manufacturing sector had grown by 40.3% year on year, 10.7 percentage points higher than the same period last year and 22.3 percentage points higher than the growth rate of such loans in all industries as a whole. In the first half of the year, loans to the manufacturing sector increased by 2.15 trillion yuan, a year-on-year increase of 821.9 billion yuan. Among these, medium- to long-term loans in the high-tech manufacturing sector grew by 41.5% year on year, an increase of 11.5 percentage points compared to the same period last year. In the first half of the year, medium- to long-term loans in the high-tech manufacturing sector increased by 483.5 billion yuan, a year-on-year increase of 184.7 billion yuan.
Looking at the infrastructure industry, medium- to long-term loans have grown rapidly. By the end of June, medium- to long-term loans in the infrastructure industry increased by 15.8% year on year, which was 3.3 percentage points higher than the same period last year. In the first half of the year, there was an additional 3.25 trillion yuan in loans, with a year-on-year increase of 1.1 trillion yuan.
The growth rate of medium- to long-term loans in the real estate industry continues to rise. By the end of June, these loans in the real estate industry increased by 7.1%, a 0.2 percentage point rise from the previous month and up 8.5 percentage points from the same period last year. This marks the 11th consecutive month of increasing growth rates. In the first half of the year, the real estate industry saw an increase of 628.7 billion yuan in medium- to long-term loans, a year-on-year increase of 459.0 billion yuan.
Next, the People's Bank of China will continue effectively utilizing the dual functions of monetary policy tools, focusing on the total quantity and structural aspects. The aim is to maintain a reasonable and steady growth of credit, while consistently enhancing support for key sectors and addressing weak areas in the national economy, so as to contribute to further improving the operation of the real economy.
Thank you!
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Market News International:
Recently, many banks have cut deposit rates again. What is the impact of the reduction in deposit rates on households' fixed-term deposits and their medium- and long-term loans? And what is the future trend of these two items? Thank you.
Zou Lan:
Thank you for your questions. In April 2022, under the guidance of the People's Bank of China, members of the interest rate self-regulatory mechanism formed a market-based adjustment mechanism for deposit rates. This mechanism guides banks to adjust deposit interest rates reasonably based on changes in market interest rates. Following this mechanism, banks conducted the first round of independent adjustments to deposit interest rates from September 2022 to April 2023. In recent months, there has been a significant increase in RMB deposits, accompanied by a continuous decline in market interest rates. However, the shift towards fixed-term and long-term deposits has increased the costs of liabilities of the banks, causing a net interest margin narrowing to around 1.7%. In response, state-owned commercial banks and joint-equity commercial banks have proactively lowered certain term deposit rates, according to changes in market supply and demand, interest rate trends, and their own business conditions. This proactive adjustment by banks demonstrates the effectiveness of the market-based adjustment mechanism for deposit rates, signifying that deposit rates are more market based.
After the proactive cut on deposit interest rates by banks, these rates have continued to exhibit a slight downward trend. In June 2023, the weighted average interest rates for demand deposits were recorded at 0.23%, marking a decrease of a 0.09 percentage point year on year. Meanwhile, the weighted average interest rates for time deposits stood at 2.22%, down a 0.12 percentage point year on year. This trend contributes to strengthened control over liability costs, creating favorable conditions for reducing loan interest rates for enterprises and enhancing banks' capability and sustainability to support the real economy. Concurrently, under the coordination of the self-disciplinary mechanism for setting interest rates, all types of banks have orderly adjusted their deposit interest rates. Despite these changes, deposits in banks continue to increase, and their distribution remains largely stable, effectively preserving a sound competitive order.
Next, the PBC will persist in deepening market-based interest rate reforms. It will continue to utilize the critical role of the market-based adjustment mechanism for deposit interest rates, guide the self-disciplinary mechanism for setting interest rates to maintain competitive order in the deposit market, promote stable bank liability costs, and enhance its ability to provide sustained financial support for the real economy. Concurrently, the PBC will encourage commercial banks to facilitate over-the-counter sales and transactions of treasury and local government bonds. They will also provide bilateral quotations to customers selling long-term bonds to ensure the ease of selling off these bonds at any time and increase the range of financial products featuring security, profitability, and liquidity available for choice. Thank you.
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CCTV:
On June 30, the PBC decided to raise the quotas for re-lending and additional subsidized loans to support agriculture and small enterprises by a total of 200 billion yuan to ramp up financial support for agriculture, rural areas, and farmers, small and micro businesses, and private enterprises. Since the beginning of this year, what measures have been taken to provide financial support for small and micro businesses and private enterprises? How effective have these measures been? Thank you.
Zou Lan:
I will take your questions. Since the start of this year, the PBC has resolutely implemented the decisions and arrangements of the CPC Central Committee and the State Council. We have fully grasped the guiding principles of the 20th CPC National Congress and the Central Economic Work Conference. In doing so, we have earnestly worked to implement the commitment to consolidating and developing the public sector while also encouraging, supporting, and guiding the development of the non-public sector. Our top priority has been to provide financial support for the development of micro and small businesses and private enterprises, which has yielded positive results.
First, the PBC has employed a variety of policy instruments to fully support the development of micro and small businesses and private enterprises. The PBC has continued to augment support for re-lending. On June 30, the PBC increased the quotas for re-lending and additional subsidized loans to support agriculture and small enterprises by a total of 200 billion yuan. The PBC has continued to leverage instruments to support inclusive loans to micro and small businesses (MSBs), providing locally incorporated financial institutions with 39.8 billion yuan in funds and increasing inclusive MSB loans by 2.2 trillion yuan. Recently, the PBC has extended the term for the implementation of instruments to support inclusive loans to micro and small businesses from the end of June this year to the end of 2024, and made some improvements and adjustments, continuing to encourage banks to support the financing of micro and small businesses.
Second, the PBC has continued to implement the project to enhance its capacity to provide financial services for micro, small and medium enterprises (MSMEs). The PBC has guided financial institutions to optimize their resource allocation and internal policy arrangements, enhanced technological applications, and advanced the establishment of a sustainable mechanism for promoting the confidence, willingness, ability, and professionalism of banks in issuing loans. Currently, national commercial banks offer a discount of no less than 0.5% in funds transfer pricing for MSB loans, and the weight of inclusive finance in the integrated performance evaluation of the branches and subsidiaries of banks is no less than 10%.
Third, the PBC has opened up diversified financing channels to ensure that enterprises have easier access to financing. The PBC has promoted the CRC Receivables Financing Service Platform and supported MSMEs to secure funds 28,000 times from January to June this year, amounting to 863.6 billion yuan. It has actively leveraged the functions of the supply chain bill platform to support enterprises in obtaining financing through bank discounting from January to June this year, amounting to 12.8 billion yuan. The PBC has upgraded and expanded the instruments for supporting bond financing for private businesses and has supported private enterprises to issue bonds totaling 28.4 billion yuan since the expansion was launched in November 2022. The PBC has increased the sources of credit support for small businesses from banks and, from January to June, has supported commercial banks to issue special financial bonds worth 124 billion yuan for MSBs.
Through the joint efforts of all parties, the financing of micro and small businesses and private enterprises has seen increases in volume, expanded coverage, and reduced prices. As of the end of June 2023, the outstanding inclusive MSB loans reached 27.7 trillion yuan, marking a year-on-year increase of 26%. A total of 59.35 million MSBs received these inclusive loans, reflecting a year-on-year increase of 13.3%. In May, the weighted average interest rate for newly issued inclusive MSB loans was 4.57%, marking a relatively low historical level.
Next, the PBC will thoroughly study and implement the guiding principles of the 20th CPC National Congress. We will resolutely work to consolidate and develop the public sector while encouraging, supporting, and guiding the development of the non-public sector. We will continue to do a good job in providing financial support for the development of micro and small businesses and private enterprises. On one hand, the PBC will continue to promote the implementation of instruments supporting inclusive MSB loans, leverage the role of re-lending for small businesses, and guide financial institutions to expand loans to micro and small businesses and private enterprises. On the other hand, we will further carry out the project to enhance the capacity to provide financial services for MSMEs, continue to strengthen synergy among relevant departments, and improve supporting mechanisms for sharing enterprise credit information and financing guarantees. This will enhance the willingness, ability, and sustainability of financial institutions to provide services for micro and small businesses and private enterprises.
Thank you!
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CNBC:
How is the demand for loans from real estate developers? In particular, how has the demand been affected following the introduction of the policy extending support for the stable and healthy development of the real estate market?
Zou Lan:
As you all know, some real estate developers long operated under the conditions of "high leverage, high debt, and high turnover." Unlimited expansion of assets in terms of land, ongoing construction projects, and a diverse range of operational assets has resulted in high levels of debt. When we break down the sources of their debts, we find that nearly 70% comes from advanced personal housing payments and project funding from upstream and downstream enterprises. Financial liabilities only account for 31%, with less than half of this constituted by bank loans.
In terms of the real estate credit structure of banks, the outstanding real estate loans stand at over 50 trillion yuan, with outstanding individual housing loans approaching 40 trillion yuan. Most people purchase homes for personal use and depend on household incomes to repay their loans monthly, with the non-performing loan ratio remaining consistently below 0.5%. Regarding individual housing loans for pre-sold homes with delayed delivery, due to existing laws, priority is given to safeguarding the interests of homebuyers. These loans might face certain risks, but they constitute a relatively small proportion of the total amount and their risks are under control. Outstanding real estate development loans amount to about 13 trillion yuan, among which the outstanding property development and government-subsidized housing development loans reach approximately 6 trillion yuan and their repayment is ensured. The loans to real estate developers amount to about 6 to 7 trillion yuan. As some of these real estate developers encounter financial problems, the non-performing loan ratio has increased slightly, but the loans to real estate enterprises account for a very small proportion of total bank loans.
Since the latter half of 2021, in accordance with the arrangements of the Party Central Committee and the State Council, financial authorities have collaborated with relevant departments to provide stronger support for the timely delivery of pre-sold homes. They have maintained stability in major financing channels for real estate enterprises and accelerated efforts to defuse risks in the real estate sector.
First, financial authorities have ramped up financial support to ensure the timely delivery of pre-sold homes, providing two batches of special loans totaling 350 billion yuan. They've established a program that offers special loans worth 200 billion yuan to ensure the timely completion of pre-sold housing projects. In addition, they guided commercial banks to proactively provide supporting financing to effectively drive the resumption of construction for local projects.
Second, financial authorities have maintained the stability of major financing channels such as bonds and equity. Since November last year, we have utilized the instruments for supporting bond financing for private businesses, providing credit enhancement support for private real estate enterprises to issue bonds totaling 26 billion yuan. Since the China Securities Regulatory Commission optimized policies for real estate enterprises to go public, numerous enterprises have benefitted from equity financing support.
Third, financial authorities have spearheaded the transformation and development of the real estate sector. The PBC and the National Administration of Financial Regulation have formulated the "Opinions on Financial Support for the Development of the Housing Rental Market," providing diversified, full-life-cycle financial services for home rentals. Financial authorities have taken steady strides in advancing the 100 billion yuan special loan program to support home rentals, and have piloted the program in cities including Jinan and Zhengzhou.
The real estate market has shown a stable trend since the beginning of this year, but it will still take some time to gradually digest the risks accumulated by some real estate companies. Given the current situation in the real estate market, the PBC and the National Financial Regulatory Administration recently issued a joint notice, extending the expiration dates of two policies with applicable periods in the "16 Financial Measures" to the end of December 2024. This aims to guide financial institutions to continue providing refinancing to real estate enterprises and to increase financial support for project completion and delivery. Simultaneously, to meet the needs of completing and delivering projects, the deadline for the 200 billion yuan loan support plan has been extended to the end of May 2024.
Next, the PBC will thoroughly implement the decisions and arrangements made by the CPC Central Committee and the State Council. We will adhere to the principle that "houses are for living in, not for speculation," and cooperate with relevant departments and local governments to solidly carry out the work of completing and delivering housing projects, ensuring people's livelihoods and maintaining stability. We will meet the reasonable financing needs of the industry, and continue to create a favorable financial environment for the orderly disposal of industry risks. Given the profound changes in the supply-demand relationship in China's real estate market, there is marginal room for optimizing the policies introduced during the past's long-term overheating stage. The financial sector will actively cooperate with relevant departments to strengthen policy research, adopt targeted measures based on different cities, improve policy precision, better support people's demand for buying their first home or improving their housing situation, and promote stable and healthy real estate market development. Thank you!
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Southern Metropolis Daily:
The PBC recently released data on the scale of social financing in the first half of 2023. Could you please explain the characteristics of the current structure of social financing? Thank you.
Ruan Jianhong:
Thank you for the question. As of the end of June, the balance of the social financing scale stood at 365.45 trillion yuan, marking a year-on-year increase of 9%. This is a 0.5 percentage point lower than the end of the previous month and 1.9 percentage points lower than the same period last year. In the first half of the year, the increase in the social financing scale was 21.55 trillion yuan, which is 475.4 billion yuan more than the same period last year. From a structural perspective, we can observe the following characteristics:
First, there has been a surge in RMB loans issued to the real economy. In the first half of the year, RMB loans issued to the real economy increased by 15.6 trillion yuan, a rise of 1.99 trillion yuan compared to the same period last year.
Second, off-balance sheet financing has recovered, with significant increases in trust loans and undiscounted bank acceptance bills. In the first half of the year, off-balance-sheet financing rose by 182.3 billion yuan, an increase of 739.6 billion yuan compared to the same period last year. Among them, trust loans grew by 22.8 billion yuan, and undiscounted bank acceptance bills increased by 85.2 billion yuan, a rise of 398 billion yuan and 261.9 billion yuan, respectively, compared to the same period last year.
Third, there has been a decrease in net financing for government bonds. In the first half of this year, net financing for government bonds stood at 3.38 trillion yuan, a decrease of 1.27 trillion yuan compared to the same period last year. Among these, net financing for national bonds was 930.5 billion yuan, an increase of 303.7 billion yuan compared to the same period last year, whereas net financing for local government bonds was 2.45 trillion yuan, a decrease of 1.58 trillion yuan compared to the same period last year. The decrease in net financing for local government bonds is primarily related to the pace of issuance. The issuance of local government bonds was faster during the same period last year, thus resulting in a higher base.
Fourth, there has been a significant decrease in direct financing by enterprises, primarily due to a drop in net financing for corporate bonds. In the first half of the year, net financing for corporate bonds was 1.17 trillion yuan, a decrease of 788.3 billion yuan compared to the same period last year. Meanwhile, domestic stock financing for non-financial enterprises amounted to 459.6 billion yuan, a decrease of 43.2 billion yuan compared to the same period the previous year. However, a marginal improvement in market financing was observed in June. In that month, net financing for corporate bonds was 222.1 billion yuan, a decrease of 12.5 billion yuan compared to the same period last year. The extent of the reduction was notably reduced. At the same time, domestic stock financing for non-financial enterprises reached 70 billion yuan, showing an increase of 11.1 billion yuan compared to the same period last year. Thank you.
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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.
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Yicai.com:
Given the economic recovery, could you please share some more details regarding the monetary policies that the PBC will adopt in the coming period? Is there any room for further reserve requirement ratio (RRR) reduction and interest cuts? Also, will the PBC adopt new structural monetary policies? Thank you.
Zou Lan:
Mr. Liu has actually already introduced some general information regarding your questions. I'd like to add some more information in this regard.
China's economy is still on track for recovery after the adjustment of the pandemic prevention and control measures. The real economy is a dynamic circular system in terms of production, distribution, circulation and consumption, so the recovery of such a system requires some time, just as Mr. Liu has said. But we should be confident and patient for this. Moreover, the internal power of the economy is still a little weak, as the country is currently in an important period of economic recovery, transformation and upgrading, where the role of the old growth drivers, such as real estate and infrastructure, are weakening, while the new growth drivers, including sci-tech innovation, green development and modern industrial systems, are gathering momentum. As such, perception of the economic outlook may vary when it comes to different market entities.
Since the beginning of the year, a prudent, targeted and effective monetary policy has supported the economic recovery. Just now, Mr. Liu has elaborated on economic aggregation, price levels and structures. In general, during recent years, China has upheld a prudent and normal monetary policy and therefore has ample policy space and rich policy tools to meet new challenges and changes. Going forward, according to economic development and price levels, as well as decisions and plans made by the CPC Central Committee and the State Council, the PBC will enhance macro regulation, and ensure a prudent, targeted and effective monetary policy. By leveraging various monetary policy tools including required reserve ratio, medium-term lending facility and open market operations, the PBC will maintain reasonably ample liquidity of the banking system, maintain appropriate increases of monetary credit, and advance a steady decrease of lending costs for enterprises and individuals.
Meanwhile, the PBC will continue to give full play to the guiding role of structural monetary policies. The PBC will ensure the implementation of 200-billion-yuan increased relending and rediscount quota for the agriculture sector and small enterprises, continue to prolong instruments to support inclusive loans to micro and small enterprises (MSEs), instruments to lower carbon emission, as well as targeted relending for clean, efficient coal use, so as to strengthen efforts to support major sectors such as MSEs and green development. We will implement an action plan to support financing for technology-based enterprises, and increase efforts to support technological innovation. Loan programs to support the delivery of pre-sold housing projects will be continued. We will further advance targeted lending for real estate enterprises to solve their difficulties, as well as rental housing loan support plans, so as to promote steady and healthy development of the real estate market. For policy tools whose implementation periods have expired, the existing balance will continue to be effective. We will maintain support of the banking industry for relevant sectors, and create new policy tools if necessary, in a bid to provide targeted financial support for key areas and weak links in the stage of high-quality development. Thank you.
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Xing Huina:
Due to the limited time, we will have the last two questions.
21st Century Business Herald:
Recently, a State Council executive meeting deliberated and adopted an action plan to support financing for technology-based enterprises. What are the measures to support financing for technology-based enterprises and what progress has been made so far? Thank you.
Liu Guoqiang:
I will answer these questions, thank you. Currently, the Chinese economy has entered a new development stage, where technological innovation serves as strategic support for implementing the new development philosophy and fostering a new development pattern. Financial regulatory departments including the PBC have earnestly implemented the decisions and arrangements of the CPC Central Committee and the State Council, prioritized providing sound financial services for technological innovation, continued to advance construction of markets and mechanisms, enriched financial support tools and methods, and channeled more financing support to technology-based enterprises. China's loans to technology-based enterprises have maintained a high growth rate and the quality and efficacy of loan services have improved significantly. By the end of June 2023, outstanding loans for specialized and sophisticated SMEs that produce new and unique products amounted to 2.72 trillion yuan, up 459.8 billion yuan, representing a growth rate of 20.4% year on year, and maintaining a growth rate of over 20% for 14 consecutive months. The weighted average interest rate of outstanding loans was 4.09%, down 39 basis points year on year. The outstanding loans for technology-based SMEs totaled 2.36 trillion yuan, up 472.7 billion yuan year on year, with a growth rate of 25.1%. The weighted average interest rate of the outstanding loans was 4.5%, down 39 basis points year on year.
Going forward, the PBC will work with relevant departments to implement the deployment and requirements of the CPC Central Committee and the State Council, further enrich monetary tools, develop the financial market and improve support policies, in a bid to channel more financial resources to technology-based enterprises, and provide targeted, high-quality and effective financial services for such enterprises. The focuses will be in the following areas:
First, we will increase credit services ability for the technological field. We will guide development and policy banks to focus on their main responsibilities and businesses and increase their efforts to serve the national strategy for technological innovation. We will encourage commercial banks to further increase loan extensions for technology-based enterprises. With a focus on constructing a professional risk evaluation system, we will optimize mechanisms for performance assessment and due diligence exemption, as well as improve organizational structures and product services that meet financing needs of technology-based enterprises.
Second, we will improve the direct financing ability of the multi-level capital market. In the bond market, we will further enrich bond products, enhance market cultivation and expand the issuance of bonds for technology-based enterprises. As for equity financing market, we will leverage the role of government investment funds in supporting the financing of technology-based enterprises, expand sources of funds and exit channels for venture capital and private equity investments, and strengthen middle and long-term capital supply for technology-based enterprises in their early stages.
Third, we will promote the risk-sharing role of insurance and financing guarantee institutions. Relevant departments will be encouraged to innovate business forms for guaranteeing financing for technology-based enterprises. Pilot policies will be fine-tuned regarding insurance compensation mechanisms for trial application of first major technological equipment and first batch of key new materials. The supply of technological insurance products will be enhanced to share and disperse risks in innovation and entrepreneurship.
Fourth, we will enhance the external financial support for technological innovation. We will support technology-based enterprises in raising funds through international capital markets under the prerequisite of ensuring safety and compliance. We will build a regular mechanism for responding to the financing needs of technology-based enterprises, and promote sharing of public technological information, and advance the pilot program for the financial reform of technological innovation in a steady and orderly manner.
Fifth, we will coordinate financial support of technological innovation with preventing financial risks. We will urge financial institutions to strengthen their risk management practices and promote a sound internal risk control mechanism for government investment funds. We will promote the role of the market in regulating financing of technology-based enterprises such as bond credit rating and intellectual property valuation, to avoid hasty investments and accumulated risks. Thank you.
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Xing Huina:
The last question.
Securities Times:
Earlier, a lot of information has been presented regarding the real estate market. I would like to ask the PBC to provide an overview of the financing of the real estate industry in the first half of the year, as well as the current status of real estate credit supply and early repayment of mortgage loans. Thank you.
Zou Lan:
The relevant information has already been explained quite clearly. Ms. Ruan has introduced the general situation regarding real estate loans. While outstanding loans are often mentioned in statistics, the support for real estate market loans is more evident in loan issuance data. The issuance of property development loans increased by around 200 billion yuan year on year, and personal housing loans have increased by more than 510 billion yuan year on year. As for early repayment of mortgage loans, there has been a substantial increase due to interest rate considerations, which is expected to continue for a quite long time. Although the issuance of loans has maintained a significant growth rate, the early prepayment of loans is also increasing. Judging only from the number of outstanding loans may lead to the misconception that credit issuance is insufficient. However, it is crucial to analyze the data structure when studying the current situation.
Regarding early prepayment of mortgage loans, as I mentioned, 99% of housing mortgage loans are in line with a floating interest rate mechanism. On the basis of the loan prime rate, a spread is determined based on market conditions at the time of contract signing. The spread is fixed during contract periods, be it a 20- or 30-year contract. We announce the loan prime rate periodically, which are sometimes lower or higher. Since last year, the loan prime rate has declined by 45 basis points. Therefore, according to contracts, interest rates of loans have automatically decreased by 0.45 percentage point. However, the spread is fixed. That is why people may find that interest rates of loans issued in previous years are higher than those of recently issued loans. The early repayment of mortgage loans is not driven by one single factor, but also by other elements such as investment yields. The practice of breaking the rigid redemption of investment products and some cases of trading below net asset value at the end of last year prompted people to adjust their allocation of assets, as they perceived it to be more beneficial. Deposits, and especially fixed-term deposits, have been increasing. Families weigh up their choices, and a lot of people choose to make early mortgage repayment. Though the support in credit issuance has increased further, the impact on outstanding loan balances remains relatively small. Thank you.
Xing Huina:
That concludes today's press conference. Thank you to all the speakers and friends from the media.
Translated and edited by Zhu Bochen, Wang Qian, Zhang Rui, Huang Shan, Xu Kailin, Xiang Bin, Wang Yiming, Gong Yingchun, Zhou Jing, Liu Jianing, Li Huiru, David Ball, and Jay Birbeck. In case of any discrepancy between the English and Chinese texts, the Chinese version is deemed to prevail.
