Read in Chinese
Speakers:
Mr. Lu Lei, deputy governor of the People's Bank of China (PBC)
Ms. Li Hongyan, deputy administrator of State Administration of Foreign Exchange (SAFE)
Mr. Zou Lan, director general of the Monetary Policy Department of the PBC
Mr. Peng Lifeng, director general of the Credit Market Department of the PBC
Mr. Xiao Sheng, director general of the Capital Account Management Department of SAFE
Chairperson:
Xing Huina, deputy director general of the Press Bureau of the State Council Information Office (SCIO) and spokesperson of the SCIO
Date:
Sept. 5, 2024
Xing Huina:
Ladies and gentlemen, good afternoon. Welcome to this press conference held by the State Council Information Office (SCIO), as part of the series "Promoting High-Quality Development." Today, we have invited Mr. Lu Lei, deputy governor of the People's Bank of China (PBC), and Ms. Li Hongyan, deputy administrator of State Administration of Foreign Exchange (SAFE), to brief you on relevant work and to take your questions. Also present today are Mr. Zou Lan, director general of the Monetary Policy Department of the PBC, Mr. Peng Lifeng, director general of the Credit Market Department of the PBC, and Mr. Xiao Sheng, director general of the Capital Account Management Department of SAFE.
Now, I'll give the floor to Mr. Lu Lei for his introduction.
Lu Lei:
Thank you. Good afternoon, everyone. I'm delighted to be here for this face-to-face exchange. I, alongside my colleagues, will give you a briefing on the financial work being done to promote high-quality development.
First of all, I would like to express my heartfelt gratitude for your long-term interest in and reporting on the reform and development of the financial sector, including the work of the PBC.
The Party Central Committee with Comrade Xi Jinping at its core attaches great importance to financial work. The third plenary session of the 20th Central Committee of the Communist Party of China (CPC) has made comprehensive arrangements to deepen the reform of the financial system, charting the course and setting the goals for optimizing financial services and promoting high-quality development. The PBC has thoroughly implemented the decisions and deployments of the Party Central Committee and the State Council, adhered to the fundamental principle of providing financial services to the real economy, and comprehensively balanced the relationship between short term and long term, steady growth and risk prevention as well as internal and external factors, effectively promoting the construction of a high-quality development pattern featuring mutual reinforcements for the real economy and the financial system. Since the beginning of this year, we have focused on the following aspects, which I would like to share with you:
First, in accordance with the requirements of a prudent monetary policy that is flexible, moderate, precise and effective, we made three significant monetary policy adjustments in February, May and July, adopting comprehensive measures in terms of aggregate, price, structure and transmission to maintain reasonable and sufficient liquidity and to promote steady declines in social financing costs. We have given guidance on optimizing the credit structure, improved the efficiency of fund utilization and effectively supported economic recovery and growth. The RMB exchange rate has remained generally stable at an adaptive, balanced level.
Second, we have fully devoted ourselves to the five major areas — technology finance, green finance, inclusive finance, pension finance and digital finance — and enhanced financial support for major strategies, key areas and weak links. At the macro-policy level, we have emphasized top-level design and systematic planning, formulated and issued policy documents, and strengthened statistical monitoring and evaluation of effects. At the working mechanism level, we are committed to improving the incentive compatible mechanism. We have guided financial institutions to make full use of various structural monetary policy instruments and continuously enhance their financial service capabilities. At the financing channel level, we have supported enterprises in financing through the bond market; and we have cooperated with relevant departments to facilitate fundraising, investment, capital management and exit in the venture capital industry, with special attention given to supporting the development of startups.
Third, we have continuously improved the risk prevention and disposal mechanism and ensured that no systemic financial risks arose. To ensure both development and security, we have worked with relevant departments to effectively address and resolve financial risks in key areas, and continuously strengthen the capacity building in financial risk monitoring, early warning and assessment, with a particular focus on the construction of an early correction mechanism with hard constraints, risk prevention and control of small and medium-sized financial institutions as well as risk prevention through reform. By establishing a financial risk disposal mechanism featuring equal rights and responsibilities and incentive-constraint compatibility, we have strengthened the resource guarantee for risk disposal and woven a tight and solid net for financial safety. Currently, the number of high-risk small and medium-sized banks has decreased by nearly half from its peak.
Fourth, we have continuously promoted high-standard opening up of the financial sector and actively participated in international financial governance and cooperation. By the end of July, overseas investors held 4.5 trillion yuan ($637.68 billion) of Chinese bonds, a record high. The RMB accounted for 6% of global trade financing, ranking second. We will continue to strengthen communication and cooperation with international financial organizations and monetary authorities of major economies, actively participate in international financial governance, and enhance our capacity for opening up through expanded international cooperation.
In summary, the monetary policy and the five major areas of finance are the footholds for the PBC to promote high-quality economic and social development through financial services, while risk prevention and control and financial openness are inherent requirements for promoting the high-quality development of the financial industry itself. We are about to celebrate the 75th anniversary of the People's Republic of China this year. The PBC will thoroughly implement the guiding principles from the third plenary session of the 20th CPC Central Committee, unwaveringly follow the path of financial development with Chinese characteristics and promote high-quality development of the economic and financial sector.
That's all I have to say. Thank you.
_ueditor_page_break_tag_
Xing Huina:
Thank you, Mr. Lu. I will give the floor to Ms. Li Hongyan for introduction.
Li Hongyan:
Good afternoon, everyone. First of all, I would like to express my heartfelt gratitude for your consistent interest in and support for the administration of foreign exchange. Since the 20th CPC National Congress, SAFE has resolutely implemented the decisions and arrangements made by the Party Central Committee with Comrade Xi Jinping at its core. We have thoroughly exercised a political, people-oriented approach to financial work and continuously promoted reforms and opening up in the foreign exchange sector, providing strong support for high-quality economic development. This is mainly manifested in the following five aspects:
First, the level of cross-border trade facilitation has been further improved. We have continuously optimized the management of trade-related foreign exchange receipts and payments and canceled the administrative licensing for the registration of foreign trade businesses, which is expected to benefit more than 100,000 business entities this year. We have supported the development of new forms of trade, encouraging banks and payment institutions to handle cross-border e-commerce trade settlements based on electronic information. In the first seven months of this year, more than 500 million transactions of this kind were processed, benefiting over 1.2 million micro and small businesses. Additionally, we have enhanced payment convenience for foreigners coming to China, achieving full coverage of foreign currency exchange services in key airports, hotels, scenic areas for cultural tourism and other major venues.
Second, high-quality opening up of capital accounts has been steadily advanced. We have supported the innovative development of science and technology enterprises and extended the policy that facilitates cross-border financing for enterprises from 17 provinces and cities to the entire country. We have optimized and upgraded management policies for cross-border capital centralized operations among multinational corporations, improving their capital allocation efficiency. We have expanded the high-standard institutional opening up of financial markets and revised the Regulations on the Domestic Securities and Futures Investment Capital of Foreign Institutional Investors, further facilitating international investment in the domestic capital market.
Third, the foreign exchange market has seen further advancements in its depth and scope. Currently, China's foreign exchange market offers trading in over 40 currencies, covering all major international foreign exchange products. I'd like to share some data: in the first seven months of this year, the total transaction volume in China's foreign exchange market surged to almost $23 trillion, an increase of 8.7% year on year. In the same period, more than 20,000 businesses engaged in exchange rate hedging for the first time, which enabled more companies to manage exchange rate risks with foreign exchange derivatives.
Fourth, the governance system and governance capacity for foreign exchange have been continuously improved. We have strengthened macroprudential management and have guided market expectations, so as to maintain foreign exchange trading at a rational and orderly manner. We have collaborated with relevant authorities to severely crackdown on illegal and irregular foreign exchange activities to maintain a healthy market environment. Moreover, we have advanced reforms with banks' foreign exchange business in a prudent manner, encouraging banks to reengineer the process for foreign exchange business, so as to set up a comprehensive business framework that includes performing due diligence before the business process, differentiating in-process reviews and post-monitoring reports. By doing this, we are aiming to foster a more open and secure foreign exchange management system.
Fifth, the management of foreign exchange reserves with Chinese characteristics has been further strengthened. China has maintained its foreign exchange reserves above $3 trillion in recent years, making it the world's largest for 19 consecutive years. This has made a positive contribution to stabilizing market confidence and supporting the real economy.
Going forward, SAFE will thoroughly study and implement the guiding principles of the third plenary session of the 20th CPC Central Committee and will further deepen the reform and high-level opening up of the foreign exchange field. We are committed to the path of financial development with Chinese characteristics and will promote the high-quality development of foreign exchange management, so as to help advance Chinese modernization.
Xing Huina:
Thank you, Mr. Li, for your introduction. Now the floor is open for questions. Please identify the news outlet you work for before asking your question.
_ueditor_page_break_tag_
CCTV:
China's central bank, as mentioned previously, has conducted a series of supportive monetary policies this year. What results have these policies yielded so far? In what ways will monetary policy continue to support high-quality economic development?
Lu Lei:
Thank you for your questions. We appreciate your interest in monetary policy, including its implementation, outcomes and future course. I've shared some information about our monetary policy previously, so I'd like to offer more specific information in response to your questions.
The PBC has been firmly committed to the decisions and arrangements of the CPC Central Committee and the State Council, implementing a sound monetary policy in a flexible, appropriate, targeted and effective manner. Notably, we've strengthened counter-cyclical adjustments, effectively boosting the recovery trend for the economy and high-quality development. I'd like to provide a detailed breakdown in three areas.
The first area is about policy implementation. On the one hand, aggregate monetary policy continues to take effect. At the beginning of the year, monetary policy was front-loaded, playing its role in keeping expectations stable and boosting confidence. We have cut the reserve requirement ratio by 0.5 percentage points as well as have lowered relending and rediscounting rates for the agriculture sector and small businesses by 0.25 percentage points, which have helped to reduce banks' funding costs. As a result, the over-five-year loan prime rate (LPR) was reduced by 0.25 percentage points, providing strong support for a good start to the development of macroeconomy. After the third plenary session of the 20th CPC Central Committee, the PBC has swiftly implemented reform arrangements, incorporating reforms into macro control and improving the mechanism for market-based interest rate adjustment. We explicitly stated and further lowered the policy interest rate as well as have reduced the open market operation rate for seven-day reverse repurchase agreements by 0.1 percentage points. This has led to a 0.1 percentage points decrease in both the one-year LPR and over-five-year LPR. These measures have been effective in stimulating demand, helping to consolidate and strengthen the momentum of economic recovery. Furthermore, we also directed major banks to reduce deposit interest rates, so as to maintain their capacity to provide services to the real economy in a sustainable manner.
The second area is concerned with the effectiveness of policy implementation. I would say structural policies play a crucial role in this regard. This year, there has been a substantial demand for structural policies. In order to promote the development of sci-tech finance, we have launched a 500-billion-yuan relending program to support technological innovation and upgrades, which has significantly boosted effective investment. We have introduced a comprehensive package of supportive financial policies for the real estate sector, aiming to foster a stable and healthy property market. Recently, we have provided an additional 100 billion yuan in loans to agricultural and small businesses, as well as for disaster relief efforts in the 12 regions that were severely affected by floods, so as to help them resume production and business operations. These measures have yielded positive outcomes. Furthermore, we have stepped up our efforts to foster a favorable monetary and financial environment to sustain economic recovery. Data shows that the growth rate of total social financing remains within a reasonable range. As of the end of July, there has been an 8.2% year-on-year increase in the stock of aggregate financing and an 8.7% year-on-year increase in the balance of yuan-dominated loans, with both of them outpacing nominal economic growth. Social financing costs have also dropped steadily. In July, the weighted average interest rate on newly issued corporate loans stood at 3.65% and the interest rate on newly issued housing loans was 3.4%, representing a year-on-year decrease of 22 basis points and 68 basis points, respectively. Furthermore, the loan structure has continued to improve. As of the end of July, inclusive loans for micro and small enterprises have increased by 17% year on year. Medium- and long-term lending to the manufacturing sector grew by 16.9% year on year, or almost hitting 17%. Loans for enterprises that use special and sophisticated technologies to produce novel and unique products increased by 15% year on year. All three figures have exceeded the 8.7% year-on-year growth rate in total outstanding loans that I mentioned previously.
The third area is about future policy orientation. The PBC will continue to maintain a supportive monetary policy, and make stepped-up efforts to ensure the implementation of existing policy measures, so as to provide stronger support for high-quality economic development. We will continue to focus on the overall quantity, interest rates and structure. In terms of overall quantity, we will make use of various monetary policy tools in a comprehensive manner to keep liquidity conditions ample, and guide banks to achieve stable and sustainable loan growth. We will ensure that the scale of social financing and money supply align with the expected targets for economic growth and price levels. When it comes to interest rates, we will leverage the recent reduction in policy interest rates and loan prime rates to further drive down enterprises' financing costs and households' credit costs. In terms of structure, we will step up efforts to implement existing policy tools and introduce new measures aiming at improving capital use efficiency, providing more and better financial services to support major strategic initiatives, key areas and weak links.
Our policy priorities in the next phase will center around three dimensions: overall quantity, price levels and structure. I'll keep my remarks brief for now. Zou Lan is director general of the Monetary Policy Department and he is available to answer any questions you may have regarding monetary policy. Please feel free to engage with him for more in-depth discussions in this area. Thank you.
_ueditor_page_break_tag_
Cover News:
The third plenary session of the 20th CPC Central Committee proposed pursuing high-standard opening up. What measures will SAFE take to implement this? Thank you.
Li Hongyan:
Thank you for your question. Studying and implementing the spirit of the third plenary session of the 20th CPC Central Committee is a major political task for both the current and upcoming periods. The resolution adopted at the session made specific arrangements for opening up and sent a clear signal about expanding high-level opening up. We will fully implement the session's decisions and plans, focusing on three main areas:
First, supporting the real economy and enhancing foreign exchange facilitation. Following principles of market liberalization with effective regulation, we'll strengthen credit risk assessment and improve classified management, making operations easier for honest, compliant enterprises. We'll build an open, diverse, full-functioned and competitive foreign exchange market to better leverage market mechanisms. Focusing on fostering new quality productive forces, we will mainly serve tech innovation enterprises as well as micro, small and medium enterprises, integrating efforts across five key financial areas: technology finance, green finance, inclusive finance, pension finance, and digital finance. We'll extend foreign exchange facilitation policies to more high-quality enterprises, stimulating internal motivation and innovation. We'll promote foreign exchange regulatory innovations to adapt to digital and green trade trends, supporting new models like cross-border e-commerce and overseas warehouses. We'll also improve foreign exchange services for foreigners in China, optimize corporate exchange rate risk management, and expand cross-border financial service platforms to enhance service quality and effectiveness.
Second, promoting reform through opening up and pursuing high-level institutional opening in foreign exchange. We'll focus on improving capital account opening quality, advancing foreign direct investment forex management reforms in an orderly manner, attracting more foreign investment, upgrading and expanding multinational corporate capital pool pilots, and optimizing the qualified foreign investor system. We will further expand high-level opening up pilot programs for cross-border trade and investment, implementing forex management innovation policies first in key areas like free trade zones, Hainan Free Trade Port and the Guangdong-Hong Kong-Macao Greater Bay Area. We support the development of international financial centers in Shanghai and Hong Kong and high-quality cooperation under the Belt and Road Initiative.
Third, promoting positive interaction between high-quality development and high-level security, maintaining forex market stability and ensuring national economic and financial security. We will strengthen "macro-prudential + micro-regulatory" management of the forex market, improve monitoring, early warning and response mechanisms for cross-border capital flows, ensure comprehensive regulatory coverage, continue strict crackdowns on illegal activities, and safeguard financial security amid opening up. We'll improve the operation and management of foreign exchange reserves with Chinese characteristics to ensure the safety, liquidity and value preservation and appreciation of reserve assets.
SAFE will implement the session's decisions with a persistent "nail-driving" spirit. We'll enhance reform planning and promotion, strengthen evaluation and follow-up, and support the development of new systems for a higher-level open economy through systemic opening in the foreign exchange sector. Thank you.
_ueditor_page_break_tag_
Bloomberg:
My question is about interest rate policy. You spoke earlier about the reserve requirement ratio (RRR) cut the PBC made at the start of the year. How much space does the PBC have to cut interest rates further and also to reduce the RRR further this year? And do you see the necessity for that with the economy the way it is now? Thank you.
Lu Lei:
Thank you for your questions. As mentioned earlier, Zou Lan, director general of the Monetary Policy Department of PBC, is here with us. I'll ask Mr. Zou to answer these questions.
Zou Lan:
Thank you for your questions. Adjustments to reserve requirement ratios and interest rates need to be evaluated based on economic trends. Among these, the RRR is a tool for providing long-term liquidity, while 7-day reverse repos and medium-term lending facilities address medium- and short-term liquidity fluctuations. This year, we've also added government bond trading tools. By using these tools comprehensively, our goal is to maintain reasonable and ample liquidity in the banking system. The effects of the RRR cut at the beginning of the year continue to emerge. Currently, the average RRR for financial institutions is about 7%, leaving some room for adjustments.
Regarding interest rates, as Mr. Lu mentioned, the PBC has continued to steadily reduce overall financing costs. Since the beginning of this year, one-year and five-year-plus loan prime rates have decreased by 0.1 percentage point and 0.35 percentage point, respectively, driving a continuous decline in average loan rates. However, factors like the speed of bank deposit shifts to asset management products and narrowing bank net interest margins constrain further reductions in deposit and loan rates. The central bank will closely monitor policy effects and adjust the intensity and pace of monetary policy based on economic recovery, goal achievement and specific macroeconomic issues.
Thank you!
_ueditor_page_break_tag_
21st Century Business Herald:
I am particularly interested in issues related to inclusive finance. Could you provide an update on the current situation and progress of inclusive finance in China? Moving forward, how will it support high-quality development?
Lu Lei:
I'll answer your questions. Thank you for your interest in inclusive finance. We consider inclusive finance an important part of China's unique financial service system. China, especially in digital inclusive finance, maintains a leading global position. For years, the PBC has taken multiple measures to strongly support inclusive finance development, aiding private, micro, small and medium enterprises, contributing to poverty alleviation and rural revitalization, and better serving social needs. From our observations, the accessibility, coverage and satisfaction of financial services have continuously improved. The benefits of financial reform and development are reaching more and more people.
In supporting private, micro, small and medium enterprises, financial service quality and effectiveness have significantly improved. The PBC has played a key role in policy guidance and incentives, establishing support tools for inclusive loans to micro and small businesses. It has guided financial institutions to enhance their service capabilities for micro, small and medium enterprises and encouraged more credit issuance to meet the needs of private, micro, small and medium enterprises. As of late July, the balance of inclusive loans to micro and small businesses reached 32.1 trillion yuan, up 17% year on year, with 62.39 million credit accounts covering over one-third of business entities.
In supporting comprehensive rural revitalization, we've consolidated poverty alleviation achievements and continued efforts persistently. Recently, the PBC, collaborating with relevant departments, introduced new policies, including five major campaigns focusing on rural industry development, construction and governance. These aim to increase financial support for rural revitalization. As of late July, the national balance of agricultural loans reached 50.47 trillion yuan, up 11.6% year on year.
In addressing critical aspects of people's well-being, the PBC, in collaboration with relevant departments, has refined policies related to the guaranteeing of loans for business startups by increasing loan limits and including veterans and disabled individuals among the beneficiaries, thereby supporting their pursuits in employment and entrepreneurship. Specifically for economically disadvantaged students, the PBC has improved government-subsidized student loans by initiating an interest-free loan policy in 2024, enabling students to finish their education. By the end of the second quarter of this year, the balance of guaranteed loans for startups reached 293.3 billion yuan and student loans were at 208.5 billion yuan.
Our review identifies policy orientation and financial institution services as the twin pillars essential for developing inclusive finance. Effective policymaking and the robust services offered by financial institutions are both indispensable. Moving forward, the PBC will balance expansion with commercial sustainability, speeding up the development of a stable, incentive-compatible mechanism for inclusive finance.
At the policy level, our strategies highlight development priorities, directing more financial resources towards key areas and populations to promote balanced and coordinated development between urban and rural areas as well as reinforce social equity and equal opportunities. Additionally, a sound management system along with implementation supervision are crucial for guiding financial institutions to make better and fuller use of monetary policy tools, instruments supporting debt financing and other financial instruments.
Regarding financial institutions, first, it is vital to utilize the comparative advantages of diverse financial entities and improve the durable mechanism that encourages financial institutions to be confident, willing and capable to grant loans. Second, we will embrace technological empowerment. As I just said, our nation leads in digital inclusive finance. Through sci-tech empowerment and application of data technologies, we aim to facilitate deeper integration of fin-tech and inclusive finance. This engagement will drive transformative shifts in how inclusive finance is developed and managed, thus enhancing the accessibility and convenience of these financial services.
Moreover, we plan to utilize platforms such as the Group of 20 and the Belt and Road Initiative for enhanced international dialogue and collaboration, deeply engaging in the global governance of inclusive finance. Thank you for your attention.
_ueditor_page_break_tag_
The Poster News APP：
In the past five years, our country has seen significant overperformance in the annual growth rates of inclusive small and micro-business loans, green loans, medium and long-term loans for high-tech manufacturing industries as well as loans to technology-driven small and medium-sized enterprises (SMEs) compared to the overall annual loan growth rates. Moving forward, how can financial supports be boosted to achieve a high level of technological independence and strength? Thank you.
Lu Lei:
Thank you for your question. As you might be aware, the PBC established a dedicated department, namely the Credit Market Department, in the first half of this year, to better implement the five major strategies for the development of the financial sector. Today, we also have with us Mr. Peng, Director of the Credit Market Department. I will pass your question to Mr. Peng.
Peng Lifeng:
Thank you for your question. The Central Financial Work Conference highlighted the significance to effectively implement the five major strategies regarding finance: technology finance, green finance, inclusive finance, pension finance and digital finance, with technology finance being listed first. Its significance shouldn't be understated. In recent years, the PBC has worked closely with the Ministry of Science and Technology and other relevant departments to continuously enhance financial support for scientific research and technological development as well as for the commercialization of results throughout the entire financial service chain, achieving noteworthy positive outcomes. For example, we made an action plan to enhance support for financing of tech-centric businesses, facilitated the establishment of pilot zones for financial reforms targeting sci-tech innovation, as well as established a policy framework for technology finance with coordination among various departments and between the central and local authorities. We have also prioritized technological innovation within our strategy to enhance the structure of capital supply, establishing a total of 700 billion yuan in special re-loans to encourage tech innovation and executing targeted actions to advance financial service capabilities in technological fields. Over the past five years, lending to technology enterprises in our country has grown at an annual rate of 20%, nearly double the overall loan growth rate. Detailed data shows even more encouraging trends: loans to tech-oriented SMEs have grown at an annual rate of 25%, higher than the growth rate of loans to all sci-tech enterprises, and loans to "specialized, sophisticated, distinctive and innovative" enterprises have risen by 18% annually, both well above the general lending growth. Furthermore, the issuance of tech notes—bonds specifically issued by tech enterprises—has totaled 860 billion yuan.
Looking ahead, our focus remains firmly on establishing China as a leader in science and technology by developing a financial system that resonates with and bolsters technological innovation. We aim to channel financial capital to invest in projects at the early stages, in small enterprises, over long time horizons, and in advanced and core technologies.
In our strategic approach, we are committed to a comprehensive methodology that integrates various elements. We are dedicated to enhancing financing services for major national scientific and technological projects, establishing a coordination mechanism between financial policies and scientific and technological industrial policies, expanding the array of policy tools and measures for boosting financial support, refining the risk mitigation mechanisms for significant technological research as well as encouraging financial institutions to offer long-term, cost-effective financing support. Furthermore, we are determined to provide robust financial services throughout the entire lifecycle of tech enterprises. We know that these enterprises transition through distinct stages: seed, startup, growth and maturity. With varying financial needs at each stage, we focus particularly on fortifying support for the startup and growth phases of sci-tech SMEs, identified as the more vulnerable segments within our national framework of scientific and technological financial services. To deepen the financial sector's supply-side structural reform, we aim to elevate three key ratios. First, we will increase the share of direct financing within social financing, further diversify capital market financing products and introduce specialized financial bonds dedicated to scientific and technological innovation. These differ from the science and technology innovation notes issued by tech enterprises in that these special financial bonds are issued by financial institutions specifically to strengthen tech enterprises and to broaden the fund resources for financial institutions. Simultaneously, we will enhance incentives and transformations within the financial system to cultivate patient capital. Second, we intend to amplify the proportion of investment at early stages and in small businesses in equity financing, implement policies and measures for the high-quality development of venture capital, optimize the complete cycle of venture capital covering fundraising, investment, management and exit, as well as improve the convenience for foreign investors undertaking equity and venture investment in China. Lastly, we seek to boost the fraction of loans allocated for scientific and technological innovation within the total loan portfolio, effectively utilize reloans designated for technological upgrades and innovations, set up an evaluation mechanism for tech-financial services, guide financial institutions to improve their risk assessment capabilities for tech enterprises, and develop more financial products tailored to the unique requirements of the high-tech sector.
_ueditor_page_break_tag_
South China Morning Post：
In a recent interview, as the governor of the PBC, Pan Gongsheng indicated that there are plans to implement new incremental policies. Could you provide more details on what these measures might entail? Will the expected interest rate reductions in the United States hasten the adoption of these policies? Thank you.
Lu Lei:
Thank you for your questions. Since they concern specific aspects of monetary policy, I would like to ask Mr. Zou to address these questions.
Zou Lan:
Thank you for your concern about monetary policy. As Mr. Lu just mentioned, since the beginning of this year, the PBC has implemented three significant monetary policy adjustments which have effectively supported economic recovery. At the beginning of the year, proactive and early measures were taken in terms of total amount, with an unexpected substantial cut in the reserve requirement ratio of 0.5 percentage points, helping the economy achieve a good start. In the second quarter, we focused on key aspects of high-quality development, established relending programs for technological innovation and transformation as well as launched a combination of policies targeting the real estate market. Since the third quarter, reforms have intensified in response to the arrangements of the third plenary session of the 20th CPC Central Committee. In late July, a series of monetary policy measures were introduced, including lowering policy interest rates and improving the interest rate adjustment mechanism. This reflects both short-term adjustments and medium- and long-term reform strategies.
Overall, a prudent monetary policy has created a favorable monetary and financial environment for economic recovery and development. In terms of total volume, there has been a reasonable growth in money supply and credit, with the growth rate of social financing and RMB loans exceeding that of nominal GDP. Structurally, support for key areas and weak links has been strengthened, and the credit structure has been continuously optimized. In terms of pricing, the cost of corporate financing and household loans have both decreased. Mr. Lu has already provided detailed data on this.
We will continue to closely monitor monetary policy adjustments of major developed economies. At the same time, China's monetary policy will continue to prioritize domestic needs, with a focus on supporting the domestic economic development. First, in terms of total amount, we will enhance counter-cyclical adjustments, flexibly use various monetary policy tools, maintain reasonable growth in money supply and credit as well as will work to steadily reduce comprehensive social financing costs to support and strengthen the positive momentum of economic recovery. Second, in terms of structure, we will focus on several key areas such as the five major tasks of promoting science and technology finance, green finance, inclusive finance, old-age finance, and digital finance ; the national strategy of issuing and making good use of ultra-long special treasury bonds to support the implementation of major national strategies and build up security capacity in key areas ; and the action plan to promote large-scale equipment renewals and trade-ins of consumer goods. We will continue to guide financial institutions to increase credit support for key areas and weak links, and, more specifically, focus on meeting reasonable consumer financing needs. Thanks.
_ueditor_page_break_tag_
Phoenix TV:
At present, cross-border capital flows are becoming increasingly frequent. Could you provide details on the reform measures worthy of attention in the next step of high-level opening-up for the capital account? Thank you.
Li Hongyan:
Thank you for your question. Mr. Xiao Sheng will answer this question.
Xiao Sheng:
Thank you for your attention to the issue of the capital account's opening-up. As Ms. Li Hongyan just mentioned, in recent years SAFE has been continuously advancing reforms in the management of foreign exchange for the capital account to better facilitate cross-border capital operations for cross-border entities. Next, SAFE will continue to implement the guiding principles of the third plenary session of the 20th CPC Central Committee, adhere to the principle of seeking progress while maintaining stability, promote stability through progress and further deepen the reforms of foreign exchange management for the capital account, thus continuously improving the quality of the capital account's opening-up. We will focus on the following four areas:
First, we will scientifically manage the timing and efficiency of the capital account's opening-up. We will strategically coordinate and orderly advance foreign exchange management reforms in areas such as direct investment, cross-border financing and cross-border security investment. At the same time, we will focus on the systematic integration of reforms and continue to promote integrated pilot policies to facilitate cross-border investment and financing. In the first eight months of this year, pilot projects for high-level opening-up of cross-border investment and financing have benefited more than 1,400 enterprises, supporting high-quality development of the real economy.
Second, we will lead the overall progress through key points to intensify the reform for foreign exchange management of the capital account. We will promote and improve integrated management of overseas lending in both foreign and domestic currencies and support enterprises in both "going global" and "bringing in" investments in an orderly manner. We will steadily advance the upgrading and expansion for the capital pool business of multinational companies, further improve the operational efficiency for the cross-border funds of multinational companies and support the development of headquarters economy. By the end of August this year, over 1,000 multinational corporate groups have participated in capital pool business, covering 18,000 member enterprises. At the same time, we will work with relevant departments to steadily expand the opening-up of financial markets, improve the management of funds for domestic enterprises' overseas direct listings, optimize the Qualified Foreign Institutional Investor (QFII) system and orderly advance the Qualified Domestic Institutional Investor (QDII) program. In the first half of this year, a total of $2.27 billion QDII quotas have been issued.
Third, we will support the opening-up and development of key regions. We will provide institutional opening-up to serve national and regional development strategies, such as supporting multinational companies in establishing global or regional treasury centers in Shanghai, supporting the Guangdong-Hong Kong-Macao Greater Bay Area in piloting various innovative policies as well as steadily advancing the construction of the Hainan Free Trade Port and cooperation zones in Hengqin and Qianhai. At the same time, we will provide precise support for regional and industrial development. Based on the earlier implementation of pilot programs such as the "Research Funding Facilitation Policy" in Hetao and "Qianhai Hong Kong Enterprise Loans " in Qianhai, both located in Shenzhen, we will further enhance support for the facilitation of cross-border investment, financing and fund exchange.
Finally, in accordance with deployment requirements of "achieving positive interaction between high-quality development and high-level security," SAFE will build and improve a fully processed, full cycle and fully linked capital account opening-up and risk prevention and control system, firmly securing the bottom line to ensure that systemic financial risks do not occur. Thank you!
_ueditor_page_break_tag_
Nikkei:
The PBC is actively planning the promotion of digital RMB, with research reaching the 10-year mark this year. What is the current progress with its empirical experiments in China? Additionally, in June of this year, the cross-border settlement pilot project for digital currencies, jointly developed by China and its Hong Kong region, Thailand and the UAE, entered the minimum viable product (MVP) stage. How do you evaluate the progress of this pilot project? Thank you.
Lu Lei:
Thank you for raising such cutting-edge questions. The construction of a legal currency system that aligns with the digital economy is a topic of great concern to central banks and international organizations. So far, there is no single model or successful paradigm. As you know, we have been actively planning, researching and promoting digital RMB for 10 years now. China's research and development of a digital RMB system aims to create a new system for the issuance and operation of RMB in a digital format that is tailored to the conditions of the digital economy. I need to emphasize that the digital economy, digital form of currency issuance and its operation represent a comprehensive reform, supporting the development of China's digital economy, improving the level of inclusive finance development and enhancing the efficiency of the currency and payment system operations. I have briefly introduced our goals and ideas to you. After more than 6 years of research and development, and over 4 years of pilot trials, spanning more than 10 years in total, we have preliminarily verified the feasibility and reliability of digital RMB in terms of theory, business and technology. We also aim to make it more compatible with the digital economy. Overall, progress has been smooth. I would like to provide a brief overview of the relevant situation.
First, a basic framework system has been established. Combining the overall situation of pilot projects with China's specific situation, we have initially formed a two-tier operational structure of "central bank plus operating institutions," with various systems being constantly improved.
Second, we have steadily expanding our R&D pilot projects, and continually exploring innovative application scenarios. At present, the digital yuan has been piloted in 17 provinces and equivalent administrative units, with applications spanning wholesale and retail, catering, culture and tourism, education as well as medical care. These pilots have yielded a batch of replicable and promotable application solutions both online and offline. The digital yuan has played a positive role in boosting consumption, promoting green transformation, and optimizing the business environment. By the end of June this year, the cumulative transaction amount of digital yuan had reached 7 trillion yuan.
Third, we have continually upgraded our services. On the one hand, we have consistently enriched the digital yuan product system, developing innovative products such as smart contracts, as well as barrier-free, age-appropriate and other functions. We have also promoted the wider acceptance of digital yuan to expand its coverage and bring greater convenience. On the other hand, we have continuously improved the digital yuan service system to offer greater convenience for foreign visitors to China. As you know, the digital yuan was used as an innovative payment method at the 2022 Beijing Winter Olympics, as well as the Chengdu Universiade and Hangzhou Asian Games in 2023. Next, the PBC will earnestly implement the spirit of the third plenary session of the 20th CPC Central Committee, grasp the general trend of digital development, continuously and steadily promote the research, development and application of the digital yuan, and consolidate the foundation for the development of the digital yuan.
This is the basic situation regarding the digital yuan, from its research and development to application. As you requested, I would like to delve into the cross-border digital currency experimental project currently underway. To be precise, such an experimental project is a multilateral central bank digital currency bridge project, which is led by the Bank for International Settlements (BIS) Hong Kong Innovation Centre, and is committed to exploring and solving the shortcomings of cross-border payments. Under the cooperation framework of the BIS, the Digital Currency Institute of the PBC, the Bank of Thailand, the Central Bank of the UAE and the Hong Kong Monetary Authority jointly participated in the project. Currently, the project has reached the minimum viable product (MVP) stage, enabling participating institutions within each jurisdiction to carry out real-world transactions in an orderly manner according to due procedures. In addition, the Group of 20 (G20) has put forward initiatives to improve cross-border payments, and several international organizations have studied the applicability of central bank digital currency in cross-border areas from different perspectives. The PBC is committed to actively participate in, conduct joint research and improve cross-border payments to foster connectivity of international financial infrastructure.
That is all from me. Thank you.
_ueditor_page_break_tag_
Economic Daily:
What are the new features and changes in China's international balance of payments in recent years? What will the trends be in the future? Thank you.
Li Hongyan:
Thank you for your questions; I'm happy to address them. The international balance of payments is a highly important indicator reflecting both domestic and external balance of an economy. It has been attracting widespread attention from markets, while its monitoring and analysis have been a focus of our work. Since the 18th CPC National Congress, China's economic strength has seen a historic leap, laying a solid foundation for the steady operation of the international balance of payments. In general, there are several features: the current account surplus is reasonable and balanced, cross-border investment is more active, an independent equilibrium has been maintained in the balance of payments, and foreign exchange reserves rank first in the world. Specifically:
First, the current account balance has expanded significantly, and has shown greater stability. In recent years, China has continuously promoted industrial transformation and upgrading, fostered integration between the service and manufacturing industries, and showed steady growth in exports. As the economy has developed and people's living standards have improved, China's import demand for overseas goods and services has also increased. In 2023, China's current account balance exceeded $7.3 trillion, an increase of 60% compared with 2012. At the same time, with the increasingly balanced, coordinated and sustainable economic development, China's current account surplus to gross domestic product (GDP) ratio has maintained at around 2% in recent years, which is within a reasonable and balanced range.
Second, two-way cross-border investment has become increasingly robust. In terms of direct investment, Chinese enterprises have strengthened their global presence and expanded their capital outflows. The stock of foreign direct investment (FDI) has leapt from 12th in 2012 to fourth in 2023 globally. China has also maintained its position as an important destination for foreign investors, with its investment stock ranking second in the world, while its investment structure has been continuously optimized. Concerning securities investment, the two-way opening of the financial market has progressed steadily, and the asset allocation demand of domestic and overseas investors has increased significantly. By the end of 2023, cross-border securities investment accounted for 17% of China's total foreign assets and liabilities, up 8 percentage points from 2012.
Third, an independent equilibrium has been maintained in the balance of payments. In recent years, the market-oriented formation mechanism of the RMB exchange rate has been continuously improved, the flexibility of the exchange rate has been continuously enhanced, and the automatic stabilizer function of the exchange rate in adjusting the international balance of payments has been continuously optimized. With the reform and development of the foreign exchange market, the ability of enterprise exchange rate risk management has significantly enhanced, and foreign exchange market transactions have become more rational and orderly. The balance of payments has gradually shifted from a pattern of surplus in both the current and capital accounts to a more balanced position with surplus in one and deficits in the other," maintaining a basic stability in foreign exchange reserves.
Looking ahead, China will further deepen reform comprehensively, continuously transform and upgrade its economic structure, and strengthen the resilience of its foreign exchange market. Under the support of these favorable factors, China's international balance of payments will continue to show a pattern of larger scale, optimized structure and basic equilibrium. At the same time, we will pay close attention to the changing situation, optimize the risk warning and response mechanism, guard against the risks of abnormal flow of cross-border funds, and safeguard China's economic and financial security. Thank you.
_ueditor_page_break_tag_
China News Service:
We recognize that high-quality development is inseparable from the advancement of financial system reform. Looking ahead, how will the central bank further refine its monetary policy framework? Thank you.
Lu Lei:
The reporter is very much concerned about monetary policies. We will have Mr. Zou Lan to answer this question.
Zou Lan:
Thank you for your question. PBC Governor Pan Gongsheng outlined the approach to improving the monetary policy framework at the Lujiazui Forum in Shanghai on June 19. Building on this, I'd like to provide an introduction that includes some updates on the latest progress.
The third plenary session of the 20th CPC Central Committee proposed deepening financial system reform and accelerating improvements to the central bank system. At its core, this involves enhancing the modern monetary policy framework with Chinese characteristics and building a strong currency. We will further improve the monetary policy framework with Chinese characteristics, considering economic and financial developments and conducting prudent assessments of monetary policy effectiveness.
First, we should consider optimizing the intermediate variables for monetary policy regulation. In recent years, China's economic structural transformation has accelerated. The financial market has developed and the financing structure has evolved. These changes have reduced the measurability and controllability of the money supply and its correlation with the economy. We will gradually shift focus from quantitative targets, using them more as observational, reference and anticipatory indicators. Instead, we'll pay more attention to price-based regulation tools such as interest rates. Simultaneously, in light of changing circumstances, we will study and improve the statistical criteria for money supply to ensure monetary statistics reflect the actual situation.
Second, we need to reform the interest rate regulation mechanism. Previously, we had multiple policy rates, making it unclear which one the market should use as a reference. Now, we have made it clear that the 7-day repo rate in the open market is the major policy rate, with the medium-term lending facility playing a secondary role in policy rates. We've changed the 7-day reverse repo from interest rate bidding to fixed-rate quantity bidding, fully meeting primary dealers' bidding needs. The interest rate is no longer a tender result but is determined by the central bank in accordance with the needs of implementing monetary policy. The quantity is no longer a means for the central bank to regulate liquidity but is jointly determined by primary dealers based on the policy rate and their market judgment. This helps boost institutions' initiative to manage liquidity.
In the future, we will further improve the market-based interest rate regulation mechanism. We'll appropriately narrow the width of the interest rate corridor to better guide market-based interest rates to operate steadily around the policy rates. Meanwhile, in terms of interest rate transmission, we'll focus on improving the quality of loan prime rate (LPR) quotes, granting financial institutions more power to set their interest rates, more accurately reflecting loan market rates, and promoting the smooth transmission of market interest rates from short to long term. To avoid affecting the transmission of policy rates to the LPR, the monthly medium-term lending facility operations will be scheduled after the LPR is published. The price will be determined by the bidding agencies' offers.
Additionally, we will continuously enrich our monetary policy toolkit. To implement the Central Financial Work Conference's requirement to enrich the monetary policy toolkit and increase treasury bond trading in the central bank's open market operations, the PBC has been conducting government bond trading since August. We released the "Announcement on Government Bond Transactions No.1" at the end of August, on the basis of strengthening coordination with financial departments and continuously optimizing the institutional arrangements for the issuance and trading of treasury bonds. In August, the PBC purchased short-term treasury bonds from primary dealers and sold long-term treasury bonds, with a net monthly purchase of 100 billion yuan in treasury bonds. The central bank's treasury bond trading primarily focuses on base currency supply and liquidity management. It allows for both buying and selling treasury bonds. Through flexible combination with other tools, short-, medium- and long-term liquidity management can be sound and targeted. At the same time, we will also take innovative steps to implement structural monetary policy tools in line with macroeconomic conditions and regulatory needs, continuously improving the efficiency of monetary policy.
Finally, we must further improve the transmission of monetary policy. This process actually has two stages. The first is transmission from the central bank to financial markets. By strengthening policy communication and expectation guidance, increasing monetary policy transparency, and enhancing financial institutions' capacity to set prices independently and rationally, we can improve the quality and efficiency of financial services. The second stage is transmission from financial markets to the real economy. We need to focus on removing barriers to policy transmission and strengthen coordination among monetary, fiscal, industrial, regulatory and other policies. We aim to promote supply-demand balance and shift economic policy focus toward areas benefiting people's livelihoods and boosting consumption. We will also improve how policies affect real economic factors like consumption, investment and other variables. These efforts will help improve the quality and efficiency of financial services.
That's all from me. Thank you!
_ueditor_page_break_tag_
Xing Huina:
Due to time constraints, we'll take one last question, please.
National Business Daily:
Green finance has become a hot topic as China pursues its dual carbon goals: peaking carbon emissions by 2030 and reaching carbon neutrality by 2060. What work has the PBC done to promote innovation in financial products and services supporting the transition to green and low-carbon development? Thank you.
Lu Lei:
Thank you for your important question. I will answer it. As we all know, green development is a defining feature of high-quality development. The concept of green development is rich and multifaceted. We've preliminarily summarized that it encompasses many areas, including industrial restructuring, climate change response, pollution prevention and control, and eco-environmental protection. Therefore, it has broad development prospects. Due to the extensive prospects and the many areas involved, green development naturally has a strong demand for funding. Therefore, we might say green finance represents a new type of supply-demand relationship formed in the financial sector as a result of green development.
Focusing on green finance, the PBC has upheld the principle of "establishing the new before abolishing the old," supporting the faster accumulation of financial resources in green and low-carbon areas. First, we've enhanced policy guidance. This year, we took the lead in introducing the "Guidance on Strengthening Financial Support for Green and Low-Carbon Development." This document specifies goals and concrete measures for optimizing the standards system, strengthening information disclosure, and promoting product and market development. In addition, we've also leveraged green financial products like green loans and bonds, utilizing carbon-reduction support tools to provide more funding for the development of green industries. As of the end of the second quarter, China's green loan balance reached 34.76 trillion yuan, up 28.5% year on year. The carbon-reduction support tool has driven over 1.1 trillion yuan in carbon-reduction loans. The balance of green bonds stood at 1.99 trillion yuan, with cumulative issuance exceeding 3.7 trillion yuan. Simultaneously, we've strengthened interdepartmental cooperation, establishing a working mechanism for green financial services to support building a beautiful China. We've enhanced interdepartmental and cross-sector coordination and cooperation among industrial and financial departments and market entities, jointly promoting the green and low-carbon transition of economic and social development.
As far as I'm concerned, interdepartmental coordination and cooperation are crucial. The financial sector, other relevant departments and market entities should all work together.
After our recent work, we've identified effective ways to develop green finance, which we summarize as "two foundations and three key elements." The "two foundations" are: first, accelerating the development of emerging green industries and second, promoting the green transition of traditional industries. The "three key elements" refer to effective monetary and credit policies, financial market instruments, and interdepartmental coordination. These will constitute the focus of our follow-up work.
First, we'll refine the policy system. In accordance with the overall requirements for building a beautiful China, we'll introduce a series of green finance policies and arrangements. We'll expand the scope of carbon reduction support tools, extend the validity period of policies, and increase the scale of re-lending to provide more low-cost funding for green development and low-carbon transition. We'll include financial institutions' support for green and low-carbon development in our green finance assessment framework. By strengthening the application of assessment results, we aim to guide more financial resources toward green and low-carbon development.
Second, we'll expand financial market instruments. We'll build a high-standard green bond market, strengthening management of green bond issuance, duration and third-party evaluations. We'll particularly focus on preventing the greenwashing of financial bonds. We'll further diversify green bond types and broaden financing channels for green industries.
Third, we'll strengthen interdepartmental coordination. We'll establish and improve a regular information-sharing mechanism and refine the support system for green finance policies. We aim to enhance the systematicity, consistency, authority, and enforceability of green finance standards.
That's all I have to say about green finance. Thank you.
Xing Huina:
Today's briefing is hereby concluded. Thanks to all the speakers and to all our media friends for participating. Goodbye, everyone.
Translated and edited by Wang Ziteng, Wang Wei, Gong Yingchun, Ma Yujia, Mi Xingang, Zhou Jing, Liao Jiaxin, Liu Sitong, Yan Xiaoqing, Zhang Rui, Zhang Tingting, Li Huiru, Xu Kailin, David Ball, Rochelle Beiersdorfer, and Jay Birbeck. In case of any discrepancy between the English and Chinese texts, the Chinese version is deemed to prevail.
