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    Respond to the Pandemic and Ensure Financial Market Stability —— Press Conference Transcript
Respond to the Pandemic and Ensure Financial Market Stability —— Press Conference Transcript

The State Council Information Office held a press conference at 10 am on Sunday, March 22, 2020. Chen Yulu, Deputy Governor of the People's Bank of China (PBC), Zhou Liang, Vice Chairman of China Banking and Insurance Regulatory Commission (CBIRC), Li Chao, Vice Chairman of China Securities Regulatory Commission (CSRC) and Xuan Changneng, Deputy Administrator of the State Administration of Foreign Exchange (SAFE) were invited to introduce how they have responded to the pandemic to ensure financial market stability and then they took questions from the press. The full text of the conference is as follows:

Hu Kaihong: Ladies and gentlemen, good morning. Welcome to this press conference of the State Council Information Office. We are pleased to have with us here Mr. Chen Yulu, PBC deputy governor, Mr. Zhou Liang, CBIRC Vice Chairman, Mr. Li Chao, CSRC Vice Chairman, and Mr. Xuan Changneng, SAFE Deputy Administrator. They will introduce how they have responded to the coronavirus to ensure financial market stability, and then they will take your questions. Now I will give the floor to Mr. Chen.

Chen Yulu: Friends from the press, good morning. Under the strong leadership of the CPC Central Committee with General Secretary Xi Jinping at its core, China has achieved significant progress in epidemic prevention and control, with the work resumption rate on the rise and people's lives gradually back to normal. To support epidemic prevention and control and businesses' resumption of operations, the financial system, guided by the decisions and plans of the CPC Central Committee and the State Council, has responded early, acted quickly,implemented precise policies and introduced a host of effective policy measures.

The PBC has funneled short, middle and long-term liquidity through accurate public market operations and targeted RRR cuts, ensuring proper and abundant liquidity in the banking system and scheduled opening and stable performance of financial markets. It has offered RMB 300 billion special re-lending and extended limits of re-lending and rediscount by RMB 500 billion, providing a strong and precise support for epidemic prevention and control and resumption of work. We have worked with government authorities like the CBIRC to offer loan rollovers and renewals to hard-hit micro, small and medium businesses and private firms, helping them keep cash flows stable to get through the crisis. We also have guided market interest rates down to reduce financing costs for the real economy.

These measures are paying off. China has witnessed the generally stable financial system, stable expectations of financial markets, and stable and fast growth in monetary credit. China's economy has survived the shock and contributed greatly to the economic and financial stability across the world.

In our battle against the coronavirus, financial workers have worked strenuously and even made heavy sacrifices as many financial services required them to go to the front line. Up to now, the financial system has recorded 1,137 infections, including 42 deaths. During the outbreak, the financial system has upheld the leadership of the Party and strengthened Party building, shoring up the confidence of frontline financial workers in the Party. Many excellent Party members, outstanding figures and typical events have emerged, delivering on their oath of "keeping in mind our Party’s founding mission".

Along with the global spread of the virus recently, global financial markets have become increasingly volatile and the world economy has been under heavier downward risk. This global situation has posed new challenges to China's economic growth. Nevertheless, the epidemic has abated and remained stable in China, the real economic activities are improving and the fundamentals sustaining sound economic growth over the long term have not been changed. Guided by the decisions and plans of the CPC Central Committee, existing policy frameworks, and the marketization and rule of law principles, the financial system will become more upbeat to accurately understand the progress of epidemic prevention and control and economic situations, and adjust the intensity, cadences and priorities of policies at a proper time in response to real situations. We will actively partner with the global community based on the progress of epidemic prevention and control and economic developments in China to cope with challenges posed by complex situations. Thank you.

Hu Kaihong: Thank you, Mr. Deputy Governor. Now let me give the floor to Vice Chairman Zhou Liang.

Zhou Liang: Friends from the press, good morning. The global spread of the virus has left global financial markets highly volatile, causing wide concern in society. Under the strong leadership of the CPC Central Committee with Comrade Xi Jinping at its core, the Chinese people have worked as one, achieving significant progress in the prevention and control of the epidemic in China, and boosting the resumption of work and normal lives. Guided by the unified arrangements of the CPC Central Committee and the State Council, the CBIRC has worked to ensure epidemic prevention and control and financial services, adopting a large array of effective and strong measures to guide banking and insurance institutions to support resumption of work and safeguard financial market stability. Therefore, the banking and insurance industries remain robust now.

Next, we will follow the instructions of General Secretary Xi Jinping on boosting epidemic prevention and control, economic and social development to do so. At the same time, we will closely watch the course of the pandemic and the developments in global financial markets to safeguard our bottom line against systematic financial risk. While implementing existing measures, we will get well prepared in terms of policy to make the most of finance. We are fully confident in winning this people's war, total war and defense war to keep the economy and society stable. Thank you.

Hu Kaihong: Thank you, Mr. Vice Chairman. Now let me give the floor to Vice Chairman Li Chao.

Li Chao: Friends from the press, good morning. With the global spread of COVID-19, global financial markets have been dramatically adjusted, causing widespread concern over the evolution of global financial markets and China's domestic financial markets like stock markets. Under the strong leadership of the CPC Central Committee with Comrade Xi Jinping at its core, the epidemic prevention and control have gained momentum in China, with businesses reopening and people's lives gradually back to normal. All these have played a decisive role in shoring up market expectations.

Compared with foreign markets, China's financial markets remain generally stable. Share-A markets show strong resilience and risk resistance capabilities, featuring smaller fluctuations and more sensible investor behaviors. This should be attributed to the deepening of the supply-side structural reform in the financial system, the precautions and a handful of positive and effective risk mitigation measures that we have taken in recent years under the arrangements of the CPC Central Committee and the State Council as well as the direction of the Financial Stability and Development Committee under the State Council.

In the capital market, we have reduced market leverage, with total leveraged funds in the stock market down by 80% from the peak of 2015. We have also taken measures like reducing stocks and controlling increments against stock pledge risks, with risk indicators trending upward and the number of companies listed through pledging down by 1/3 from the peak level. We have optimized transaction regulations and increased transparency, thus raising market expectations of regulations. We have continued with reform and opening up in the capital market, such as the launch of the STAR market and piloting of the registration-based IPO system as well as two-way opening measures in 2019.

Li Chao: We have released some documents with relevant authorities since the outbreak, highlighting special arrangements in corporate financing in the capital market, support for key regions and industries, fees reduction and exemption, and convenient services. These initiatives, aligned with market laws, show regulators' care to tide businesses and industries over the crisis and strengthen the underlying bases of market operations. While ensuring robust market operations, China's capital market has played its normal roles. In particular, under the instruction and coordination of the Financial Stability and Development Committee under the State Council, share-A markets were reopened as scheduled after the Chinese New Year. With the market regime at full play without administrative interventions, the market's self-adjustment function has been unlocked, maintaining the smooth operations of the financial market and strongly boosting risk mitigation and investor confidence.

In the first two months of this year, a total of around RMB 1.3 trillion was raised through equities and bonds traded on the exchanges. Specifically, 38 companies completed IPOs raising RMB 72.4 billion in funds and RMB 90.1 billion was raised through refinancing; and bonds worth RMB 1.1 trillion were issued on the exchanges, up by 30% year-on-year. More important, the efforts to strike a balance between epidemic prevention and control and economic and social development have been proved effective and impactful, with significant marginal changes observed in each indicator for March. Our survey of listed companies shows that the work resumption rate has exceeded 98%, higher than the national average. The financial market abounds with reasonable liquidity and the stock market valuation is at a historical low. Overall, despite the temporary impact from the external environment, the trend that China's capital market will remain stable and sound will not be changed. Thank you.

Hu Kaihong: Thank you, Mr. Vice Chairman. Now let me invite Deputy Administrator Xuan Changneng for some remarks.

Xuan Changneng: Friends from the press, good morning. Since the outbreak, we have followed General Secretary Xi Jinping's instructions, and the arrangements of the Leading Group of the CPC Central Committee for Novel Coronavirus Prevention and Control, and worked under the direction of the Financial Stability and Development Committee under the State Council to coordinate the epidemic prevention and control with economic and social development, supporting the battle against the coronavirus and resumption of work. Data shows China's foreign exchange market has remained stable in the year to date, despite the epidemic. Now let me highlight our efforts in supporting foreign exchange policies and current situations of China's foreign exchange market.

First, our recent work in review.

At the SAFE, we have made epidemic prevention and control and supporting the resumption of work our top priority for now. We have listened to businesses' demands, helped them address issues associated with foreign exchange and stepped up support through foreign exchange policies. Firstly, we have continued adopting the convenient policies to support epidemic prevention and control and resumption of work. Secondly, we have raised the macro-prudential regulation parameter to expand the room for cross-border financing. On March 12, the PBC and the SAFE jointly issued a circular to raise the macro-prudential regulation parameter from 1 to 1.25. Accordingly, the upper limit for the weighted balance of cross-border financing risk rose from 2 to 2.5 times of net assets, further expanding the room for cross-border financing for domestic players excluding government financing platforms and real estate developers, which is favorable for SMEs and private firms to raise funds through domestic and foreign channels. Thirdly, we have expanded the piloting of external debt facilitation and supported high-tech players to finance overseas. The piloting scope has been expanded to include Shanghai, Hubei, Guangdong and Shenzhen, and eligible high-tech companies have been allowed to borrow funds of no higher than the equivalent of USD 5 million. At the same time, we have raised the external debt facilitation level for Beijing Zhongguancun Science City Haidian Park to better satisfy high-tech companies' needs for external debt and reduce their financial costs. Fourthly, we have facilitated trade finance by SMEs through cross-border financial blockchain platforms.

Second, current situations of China's foreign exchange markets.

Overall, China's cross-border capital flows have stayed generally stable and the supply and demand in its foreign exchange markets have been in equilibrium in the year to date, despite the impact from the coronavirus.

Firstly, the RMB exchange rate has fluctuated in two ways within a reasonable range. In the year to date, the RMB exchange rate has stayed generally stable. As of March 20, spot RMB transactions inside China had been devalued by 1.4%, while the US Dollar Index had risen by 5.2%. The Emerging Market Currency Index (EMCI) had fallen by 13.4%. Due to the heightened volatility in global financial markets since late February, the spot RMB transactions in China were devalued by 0.7% while EMCI fell by 10% from February 21 to March 20. As of late March, the RMB was much less devalued than the euro and the pound. All these data shows that the RMB exchange rate remained robust in global foreign exchange markets, especially the emerging markets.

Secondly, the supply and demand in the foreign exchange market have been in a basic equilibrium. From January to February, foreign exchange sales and settlements by banks in China registered a surplus of USD 20.6 billion, and foreign-related payments and receipts by non-banking sectors recorded a surplus of USD 18.7 billion. Considering other supply and demand factors like forward foreign exchange sales and settlements and options, the supply and demand in China's foreign exchange market has been in balance.

Thirdly, China's foreign exchange reserves have stayed generally stable. As of late February, China posted USD 3.1067 trillion in foreign exchange reserves, which was stable.

We also have noticed that as the pandemic rages across the world, and crude oil prices plummet in global markets, global financial markets have become more volatile recently. Given this, we will tighten monitoring and give proper response.

Next, we will continue to follow the decisions and plans of the CPC Central Committee and the State Council to speed up the implementation of cross-border trade and investment facilitation measures, and continue to optimize the business environment for foreign exchange, so as to better serve the development of the real economy. What's more, we will refine the two-faceted management framework of "macro-prudence + micro-regulation" for the foreign exchange market and guard against cross-border capital flow risks to safeguard the country's economic and financial security. Thank you.

Hu Kaihong: Many thanks, Mr. Deputy Administrator. Now we will take your questions. Please tell us the news agency you represent before asking your questions.

China Media Group CCTV: I have a couple of questions for Mr. Deputy Governor. Since the second half of last year, China's CPI has been rising and the data for February just released remains high. I wonder how the PBC look at the future trends of CPI? What monetary policy will be introduced to strike a balance beyond "stable growth" and "controlled inflation"?

Chen Yulu: The ultimate goal of China's monetary policy is to "keep the currency value stable to boost economic growth", according to the Law of the People's Republic of China on the People's Bank of China. Therefore, the top priority of our monetary policy is to keep the currency value stable, including stable domestic prices and RMB exchange rate if it is reasonable and in equilibrium. Prices are closely related to people's daily lives, which has been borne in our mind when we develop and implement policies. CPI for the whole year of 2019 went up by 2.9%, primarily driven by structural factors, or as is known to us, the short supply of pork and selected foods. As authorities introduced policies to ensure sufficient supply and stable prices and guided market expectations, expectations of inflation remained stable and didn't diverge in 2019.

You have just mentioned that CPI for January and February 2020 rose by 5.3% year-on-year. This was caused by the pull of structural factors as well as the virus that has an impact on supply, which means that the increase was structural and temporary. It should be noted that the impact of the epidemic on supply and inflation will last a while yet. As epidemic prevention and control efforts are yielding positive changes and operations are gradually resumed, production and supply of goods will rise. Therefore, we will see a better situation with the prices expected to fall quarter over quarter in the quarters ahead.

The key to stable prices is economic fundamentals. Currently China's macro-economy is performing steadily, with total supply and total demand generally balanced, leaving no ground for long-term inflation or deflation. In 2020, a robust monetary policy will become more focused on flexibility and moderation. By ensuring the intensity, cadence and priorities of policies as the epidemic evolves, efforts will be made to balance the growth of M2 and aggregate financing to the real economy with nominal GDP growth. Under this circumstance, we will work to keep prices generally stable, and guard against the combined impact of credit crunch risk and economic downturns, in a bid to strike a balance between stable growth, risk prevention and inflation control. Thank you.

Nihon Keizai Shimbun (Nikkei): I have two questions. The first is while global stock markets are in volatility, China's and its RMB exchange rate stay stable. Could you explain why? Second, word has it that China's financial market will become the world's safety haven. Could you brief us on the inflows of foreign capital in China's stock and bond markets? Thank you.

Li Chao: Along with economic globalization, it is inevitable and natural that the volatility in global financial markets will impact China's. The direct impact may be as follows: first, the impact on people's sentiment, that is, foreigners' panic may be also felt by domestic investors. Second, the impact on capital flows. Share-A investors have experienced sentimental fluctuations for a short while but have been pacified and become sensible now. For capital flows, I will give you some data in a minute. Anyway, the impact on share-A markets will be limited and the aggregate will not be great.

Then, in such a context, why do China's markets stay stable with strong risk resistance capabilities and low volatility? As I have just mentioned, this should be attributed to, for example, supply-side financial structural reform. Actually we have taken some measures in advance, and as a result, some hidden risks associated with China's financial system, especially the capital market, have been mitigated. In addition, other two factors are at play. Let me highlight them as follows:

First, as shown by the underlying structure of share-A markets, their valuation is relatively low. The price earnings ratio of the SSE Composite Index is not more than 12 times and that of the SSE 50 Index is even lower, at less than 9 times. Compared with overseas markets horizontally, or with historical performance vertically, the price earnings ratio is low, which is attractive to investors. Moreover, with adequate liquidity, share-A markets are facing relatively low risks.

Second, as for the macro environment facing share-A markets, China's epidemic prevention and control is at a different stage from those of the rest of the world, with the impact of the virus on share-A markets gradually overcome and companies trying to restart as early as possible. You may also notice a figure I have released just now. A quick survey we conducted in early March found that more than 98% of over 2,700 listed companies resumed operations in early March. In our survey sample, SMEs, which may also concern you, are faring well, with 80% of workers back to their jobs. These data are encouraging with some positive signals.

Overall, economic recovery or even quick recovery has found a ground in China, despite the impact from severe volatility in overseas markets, which is controllable, limited and temporary.

As for foreign capital flows, the data available shows limited outflows, and even some low inflows in the bond market. In the stock market, you may also have noted that outflows for the past month were huge and concentrated. But in the year to date, foreign capital outflows from share-A markets have reached RMB 20 billion or more. As foreign capital inflows in share-A markets were huge and concentrated in 2019, the data for the most recent month was low in comparison. Actually, the net outflows were modest. The ratio of foreign capital to traded market value in share-A markets is less than 4%, and its share in transactions is also limited. Therefore, foreign capital flows do have an impact on share-A markets, but no disruptive or radical shock. Thank you.

Zhou Liang: Vice Chairman Li Chao has just said that China's stock market is dominated by domestic investors while foreign investors account for a small share. In China's current financing structure, direct financing is low while indirect financing is dominant. Next, the CBIRC will deepen the supply-side financial structural reform to support the expansion of direct financing. As you know, the development of the capital market is dependent on two factors: one is stable source of funds in the long term and the other is myriad healthy institutional investors. Insurance companies have become the second largest long-term institutional investors in China's capital market. Currently, RMB 18.8 trillion in insurance funds have been invested, including RMB 2 trillion invested in stocks and funds, which accounts for 10.8% of insurance fund investment.

Although global financial markets have been fluctuating sharply these days, China's stock market has stayed generally stable. In addition to China's economic fundamentals, this should be attributed to the great efforts the CSRC has made. Next, the CBIRC will strongly support insurance companies to make investments, especially robust, long-term value investments in compliance with laws and regulations and market rules. We will also deepen the market reform regarding insurance fund investment and grant more autonomy to insurance companies under prudential regulation. For those with a high solvency adequacy ratio and well-matched assets and liabilities, we will allow them to moderately increase the share of equity investment if equity investment they have made reaches the upper limit of 30%. This surely would be based on rigorous risk control. Further, we will encourage more WM subsidiaries to be established, build and refine the third pillar for pension security, and support direct financing to do our bit to boost the stable and healthy development of China's capital market over the long term.

Market News International: I have two questions. First, 6 central banks across the world have recently committed to providing more dollar liquidity through the long-term dollar liquidity swap lines. Will China's central bank participate in this action or similar global cooperation and coordination efforts? My second question is for the CBIRC and is about financial support for epidemic control and resumption of work. How should financial institutions support core players along the industry chain to provide liquidity to downstream players? Thank you.

Chen Yulu: Thank you. China and the rest of the world live in a community of shared future for mankind, as emphasized by President Xi Jinping many times. Along with the global spread of the virus, global financial markets have become more volatile, sending stock markets in Europe, the US and many emerging market economies tumbling. The pandemic has dealt a big blow to the world economy and finance. But both the pandemic and its impact on the global economy are the common challenges facing the world. Although the virus has not been totally contained in China, we have overcome various difficulties to offer due help to the international community.

Given that the pandemic is rapidly spreading in depth and width, countries across the globe need to enhance global coordination in macro policies such as public health policy, trade policy, fiscal and monetary policy to strengthen coordination and effectiveness of global response.

As for whether the PBC has participated in global policy coordination, over which you are concerned, I'd say the PBC has been coordinating policies with international organizations and major central banks through multilateral, regional and bilateral channels, since the outbreak of the coronavirus. Governor Yi Gang has communicated with Ms. Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), Mr. Agustín Carstens, General Manager of the Bank of International Settlements (BIS), and Mr. Jerome Powell, Chairman of the Federal Reserve System (FED) many times to exchange their ideas on how to effectively respond to the coronavirus outbreak through monetary and financial policies. The PBC also has reported the impact of the pandemic and China's effective response to the central banks of G20 economies and major international financial institutions. Our communication, reports and exchanges have been responded positively from the international community.

We have noticed that as the pandemic rages across the world, many countries have adopted similar policy measures to respond and safeguard their financial market stability. As a major global platform for the coordination of macroeconomic policies, G20 played a historic role in coordinating and boosting global economic recovery in the wake of the 2008 financial crisis. IMF, the core of the global financial security network, shoulders the responsibility for safeguarding the global financial market stability. We support international multilateral platforms and institutions like G20 and the IMF to continue to play a positive role in policy coordination and crisis aid, so as to effectively prevent and control the pandemic and ensure global economic and financial stability. Thank you.

Zhou Liang: As you know, more and more companies along industry chains have restarted for business. Some players have seen dramatic changes in industry distribution since manufacturing industrialization, especially in the post-industrial era. Any single company could hardly produce a whole product alone now. The reporter mentioned industry chain, and I think it is the core to resumption of work. A core company tends to be at the center of an industry chain, surrounded by many SMEs upstream and downstream, especially micro and small businesses. We have done plenty of study on this recently. For example, there is an automotive group with more than 500 upstream and downstream partners. Then we guide a bank to provide services to the group given that the whole industry chain has products, markets and technologies, the core player is run normally and upstream and downstream players pay on time. So the bank extends more than RMB 70 billion in credit to the company, which boosts it to reopen soon. What will the company do afterwards? It will pay private, micro and small businesses upstream and downstream through prepayment. At that moment, the core company is in a leading position. But we also need to prevent it from taking this opportunity to corrode the interests of the micro and small businesses upstream and downstream. So we tighten regulation to ensure its prepayments will not do so. In addition, we support the company to conduct financing by pledging receivables, warehouse receipts and inventories. On the other hand, the bank expands technology applications based on the big data-enabled risk control system and offers financing services for the micro and small businesses upstream and downstream using the big data and blockchain technologies.

The reporter may be more concerned about the support from the banking and insurance industries, while industry chain financing is just a case for resumption of work. What I want to say is that the CBIRC has introduced a series of policies for the financial system to support the growth of the real economy. These policies include: first, supporting companies that are key to epidemic prevention and control to resume work and expand capacity. Second, flexibly adjusting arrangements for individuals who have difficulty in paying consumer loans including credit card, auto loan and mortgage loan to pay these loans. Third, helping eligible companies who are temporarily running short of money to get through by making temporary arrangements for deferred payment of principal and interest. Fourth, stepping up credit support for private, micro and small businesses, especially by lowering their financing costs. Fifth, developing SC finance to relieve micro and small businesses downstream and upstream of liquidity pressure. Sixth, precisely supporting key projects and engineering that drive macroeconomic and regional development in accordance with national strategies. Banks have provided credit support of more than RMB 1.8 trillion for epidemic control. Since January 25, around 20% micro, small and medium companies have been allowed deferred payment for principal and interest of overdue loans. In January and February, an additional loan of RMB 250 billion was issued to the manufacturing industry, significantly higher than that of the same period of the previous year. Banks and insurance institutions have performed their social responsibilities by donating supplies worth RMB 2.7 billion to the front lines of the battle against the virus. As the epidemic spreads globally, selected Chinese banks and insurance companies have offered aid to more than 20 affected countries and regions. For example, the Bank of China purchased 2.25 million pieces of medical supplies including face masks, gloves and protective gowns and sent them to over 10 countries and regions. The China Construction Bank and the Industrial and Commercial Bank of China have followed suit.

Zhou Liang: Under the leadership of the CPC Central Committee with Comrade Xi Jinping at its core, positive progress has been achieved in epidemic prevention and control in China, and resumption of work has been pressed ahead with step by step. Since the outbreak, we have gone all out to ensure the continuity of financial services. Employees have been with us working on the front line and Party members have acted as role models. Except Hubei, banking outlets across the country report a work resumption rate of 95% and insurance outlets, more than 97%. Online and offline financial services have remained robust and flexible. A recent sample survey found that corporate account activeness has surged, fund flows and turnovers have been dramatically accelerated. For example, account activeness of sampled micro and small businesses for early March rose by 29 percentage points from that of late February, showing that the economy is becoming active again.

Next, the CBIRC will follow the unified arrangements of the CPC Central Committee and the State Council to provide financial support for epidemic prevention and control and to improve the quality and efficiency of financial services for the growth of the real economy. We will enhance services for micro, small and private businesses, especially the private manufacturing industry, by increasing volume, reducing prices, enhancing quality and expanding coverage. As building a moderately prosperous society in all respects is one of our nation's top priorities for this year, we have increased financial support for poverty alleviation and will ensure implementation in a problem, target and demand-oriented approach. Notwithstanding our efforts, we will still need to overcome our weaknesses and some companies will continue to find access to financing hard and costly. We will do whatever it takes to improve our quality and efficiency to address concerns of companies and our people. Thank you.

China Business News: I have learned that the PBC and the SAFE have adjusted the macro-prudential regulation parameter for full-scale cross-border financing. To what extent will this measure support companies? Will it cause external debt risk? Thank you.

Xuan Changneng: Thank you. In 2016, the PBC and the SAFE established a macro-prudential management framework for full-scale cross-border financing and eliminated the ex-ante approval for external debt, which have strongly facilitated cross-border financing by domestic institutions. This policy adjustment mainly concerns the upgrading of the macro-prudential regulation parameter for full-scale cross-border financing from 1 to 1.25, which will expand the leeway for securing external funding and reduce financing costs for physical entities.

By initial estimates, this adjustment will allow firms to access tens of billions of USD in external funding. Currently SMEs secure external funding through overseas banks and overseas affiliates at a cost that varies with corporate finances, operations and outlooks. With the upper limit of risk-weighted cross-border financing raised from 2 times to 2.5 times net assets and the room for external financing expanded by 25%, this adjustment is expected to enable firms to secure tens of billions of USD in external funding. By supporting domestic institutions especially SMEs and private firms to leverage global and domestic resources and markets to raise funds through diverse channels, this adjustment will help alleviate the difficulty and the high costs to access financing, and enable firms to restart. In particular, as policy rates in overseas markets are generally low now, this adjustment will give Chinese enterprises greater room to secure financing overseas.

But this adjustment will not lead to surges in external debt. China's external debt is reasonable in both size and structure, with overall risk associated with external debt under control. Firms' debts to overseas banks and their affiliates are modest in size, occupying a limited share in total external debt. Therefore, this adjustment will not cause our external debt to soar while facilitating cross-border financing by domestic institutions.

Worth noting is that this adjustment is not applicable to local government's financing platforms and real estate developers, who, therefore, should not borrow money overseas based on this policy.

CNBC: What considerations and measures other than communication will help stabilize global financial markets if Chinese financial institutions are going to go global?

Chen Yulu: As the pandemic rages across the globe, global financial markets have become increasingly volatile these days. Indeed, the stock markets of Europe, the US and many emerging market economies have tumbled by a median of around 30%, which has caused great concern in the international community. But it is premature to say a global financial crisis is haunting the world economy. A global financial crisis is usually characterized by the following: first, global financial markets are plummeting due to cross-market and persistent panic. Second, legions of financial institutions, particularly those of systematic significance, go bankruptcy. Third, the global real economies are performing poorly. To respond to the heightened volatility of global financial markets, many countries have introduced some measures, whose impacts need to be watched.

As Mr. Li has said, in theory, volatility in global financial markets may impact China's financial markets through three channels. First, pessimism in overseas markets spreads to China. Second, global capital flows into China. Third, deteriorated balance sheets of multinationals and foreign financial institutions may also be felt in China.

But in practice, China's financial markets have stood the test and remained stable with tiny fluctuations as global financial markets are in volatility. China's financial markets are performing stably and market expectations stay steady now, allowing adequate macroeconomic policy space and sufficient instruments. This is because: first, major risks have been forestalled and defused, the supply-side financial structural reform has been boosted and the financial sector has been opened wider, making China's financial system more robust. Second, China's financial markets, after reopened as scheduled, have performed steadily, and so has their infrastructure, shoring up investor confidence. Third, since the outbreak, China has stressed moderate flexibility in its monetary policy for early response and quick action, and financial regulatory policy has been put in place quickly, offering strong and precise support to the real economy, especially hard-hit regions, micro, small and medium businesses and private firms, thus stabilizing the economy.

Next, under the direction of the Financial Stability and Development Committee under the State Council, we will work to ensure the success of two tasks amid volatile global financial markets. First, we will be dedicated to our own business under the existing guidelines and policy frameworks. Over 70 years of rapid development, China has become a financial giant boasting the world's largest credit market, highest foreign exchange reserves, and second largest stock, bonds and insurance markets. Therefore, ensuring China's financial market stability is a great contribution to global financial stability. Second, we will participate in international coordination of macroeconomic policies. We will intensify monitoring of the performance of global financial markets, deeply analyze, study and identify the underlying laws of this round of volatility in global financial markets, and draw on China's experience in introducing epidemic response policies to offer constructive ideas on global coordination of economic policies. At the same time, we will participate in offering multilateral global aid to developing countries that are reeling from the pandemic, so as to jointly safeguard the stability of global financial markets. Thank you.

CRI of China Media Group: The CSRC has introduced many initiatives on deepening the capital market reform and opening up wider since last year. I wonder whether your work, especially the STAR market reform, will slow down amid the outbreak and global spread of the coronavirus? Thank you.

Li Chao: Thank you for your question. Overall, the reform and opening up of China's capital market will not be derailed by the virus. In fact, China's capital market came into being as a product of reform and opening up, and boasts a history of 30 years. Over these three decades, as we have observed, China's capital market became more stable and played a better role as reform and opening up was intensified with positive impacts; but it came across difficulties when reform and opening up was sluggish. Therefore, it is clear that the reform and opening up of the capital market has its underlying reasons and drivers. We need to get the best out of the capital market, but as we are still grappling with weaknesses and deficiencies, we will continue to step up reform and opening up.

As for the STAR market reform that concerns you, we have conducted research and validation for a while, including soliciting ideas in some areas. This reform will be focused on the registration-based IPO system, complete with basic systems such as issuance, listing, information disclosure, transaction and delisting. Related work is being pushed ahead. Moreover, we will follow the 12 priorities of this reform, including advancing the registration system reform, enhancing quality of listed companies, improving and strengthening service quality of intermediary institutions, protecting investors' interests, and creating a more favorable environment for middle and long-term capital investment, so as to further intensify the reform and build a regulated, transparent, open, vibrant and resilient capital market.

For opening up, focus will be on market opening and access. To support market opening, we are putting in place relevant systems and rules and will continue to expand the scope and categories of investable products.

For market access, we reviewed several foreign-controlled securities companies in 2019. We also announced a few days ago that wholly foreign-owned securities and funds companies can apply for reviews of sole foreign ownership starting from April 1. Overall, we are determined about the direction of opening up that has already been defined. Thank you.

Reuters: The Fed has slashed interest rate to zero and restarted QE recently. Will China's central bank take bigger steps to ease monetary policy? Is there further room for interest reduction and required reserve ratio (RRR) cuts? How would you guard against imported financial risks? Thank you.

Chen Yulu: Thank you. We all know that as the pandemic rages, countries are introducing measures to increase liquidity and reduce financing costs for the real economy, such as slashing interest rates. But some are also increasing their interest rates to keep their currency value stable.

In China, we have been dedicated to epidemic prevention and control and supporting resumption of work since the outbreak, based on our situation and existing policy frameworks. Under the overall framework for monetary policy, key policies have been implemented as follows: first, the RMB 300 billion targeted re-lending has benefitted more than 5,000 companies critical to epidemic prevention and control, and over RMB 200 billion loans with discounted interest rates have been issued, with companies' financing cost only at 1.27% or so. An extra RMB 500 billion re-lending and re-discounting limit has been extended to support the resumption of work at micro, small and medium firms. A total of more than RMB 130 billion loans with discounted interest rates have been issued, and the interest rates have been much lower than 4.55%. Second, we have guided down market interest rates and the real loan rates are falling markedly. In February, conventional loan rate was 5.49%, down by 0.61 percentage points from the level before the loan prime rate (LPR) reform. Supported by these policies, China's real economy has been improving marginally. Based on the changes in payment and settlement data since the beginning of March, including loan and deposit data, the real economy has remained sound. It is estimated that the economic indicators will improve significantly in the second quarter, and China's economy will soon recover to a level close to its potential output.

As for the orientation of our future monetary policies, we will focus on the following: first, we will ensure the intensity, cadence and focus of monetary policies in phases so that liquidity could be adequate and remain at a reasonable level. In particular, we must ensure the growth of M2 and aggregate financing to the real economy are matched with or even slightly higher than nominal GDP growth. As you may have noticed, M2 for February grew by 8.8% year-on-year, and existing aggregate financing to the real economy rose by 10.7% year-on-year. These two indicators have signaled that orientation of China's monetary policy.

Second, we will make good use of the unique roles of structural monetary policies. For either the policy for RMB 300 billion targeted re-lending or the policy for extra RMB 500 billion re-lending and re-discounting limit, we need to guide financial institutions to offer stronger credit support to core enterprises on industry chains and micro, small and medium businesses and private firms downstream and upstream. In structural monetary policies, there will also be targeted RRR cuts policy, and extra targeted RRR cuts policy for joint-stock banks. To incentivize and guide these institutions, these policies must be well implemented.

Third, we will make the best of policy finance. We will fully leverage the RMB 350 billion targeted credit limit from policy banks to provide strong credit support for the resumption of work at micro, small and private firms, the key areas for preparing for spring ploughing, pig farming and foreign trade especially production of products in international supply chains at preferential interest rates.

Fourth, we will strengthen support for small and medium banks to increase capital and issue financial bonds, so that commercial banks' desire and capability to extend credit could be further improved.

Last but not least, we will continue with the LPR reform to drive down real loan rates. We will guide the banking system to make room for the real economy and ensure a win-win situation of "stable economy" and "stable finance". Thank you.

China News Service: While global markets have been in volatility recently, China's economy is also under heavier downward pressure. What would this impact China's banking and insurance industries? What would the CBIRC respond? Thank you.

Zhou Liang: Thank you for your questions. Given the volatility in global financial markets and the downward pressure on China's economy, we believe China's banking and insurance industries will be impacted, but not heavily. First, China's banking and insurance industries are performing very stably now, with no signs of heavy risk exposure. Second, as the virus abates in China, the banking and insurance industries will continue its momentum of healthy and stable growth. As you know, guarding against financial risk is the permanent topic in the financial world. Since the National Financial Work Conference, the CBIRC has made preventing and addressing financial risk its top priority, which has produced positive results. Data shows that China's macro leverage is generally stable, and diversified financial risk has contracted. Over the past three years, in the banking sector, RMB 5.8 trillion in NPLs has been disposed of, risky businesses like shadow banking and cross financial business have shrunk by RMB 16 trillion and a batch of financial institutions violating laws and regulations have been punished. Risks associated with Internet lending, or P2P lending, have been markedly mitigated, and the number of P2P lending institutions has been cut by nearly 90% from the level of three years ago. A host of illegal funding cases have been identified and solved, and people concerned have been punished. The financial market order is changing for the better.

In recent years, as the supply-side financial structural reform is deepened and the financial sector is opened up, governance in banking and insurance institutions has been further standardized. Getting back to basics or focusing on primary responsibilities or businesses has become a trend in the banking and insurance industries. The early-stage efforts to forestall and defuse financial risk and carry out the system and mechanism reform have laid a solid foundation for the robust growth and risk response of the banking and insurance industries. Facts and figures are more convincing. For example, latest data shows that new RMB loans hit RMB 4.2 trillion in January and February, representing an increase of RMB 130.8 billion year-on-year, which has provided a strong boost to epidemic prevention and control and economic growth. In February, with so many businesses shut down, everyone was concerned that micro, small and medium businesses and the real economy were impacted, but financial data shows that banks' NPL rate by the end of February rose by only 0.06 percentage points from that of the beginning of the year, and the rate reaches 2.08% now. At the same time, loan loss provisions at banks exceeded RMB 6 trillion, which means tremendous resources have been set aside to cope with future risks. Provision coverage hit 181%, meaning RMB 181 in loss reserves needs to be provided for NPL of RMB 100. Capital adequacy ratio of banks reached 14.6% and solvency adequacy ratio in the insurance industry was 247%. Overall, the banking and insurance industries boast strong risk resilience and adequate resources available.

Next, the CBIRC will continue to forestall and defuse financial risks, and deepen the supply-side financial structural reform to boost the high-quality development of the banking and insurance industries. First, a multi-faceted approach will be adopted to intensify the disposal of NPLs, dispose of risky institutions properly, crack down on shadow banking and reduce risky businesses. Second, we will work to prevent consumers from hoarding housing to drive smooth and healthy development of the real estate market. We will also cooperate with local governments to properly reduce hidden local debts. Third, we will press ahead with the crackdown on P2P lending and step up the standardization of online insurance. Fourth, we will facilitate the improvement of corporate governance of banks and insurance institutions, especially the standardization of equity management, as some small and medium financial institutions witnessed a chaos in equity management recently, such as illegal interventions of major shareholders in corporate operations and control by insiders, or even embezzlement by some people. All these are what we will crack down on, and we will continue to steer banks and insurance institutions to get standardized and rigorously punish people who violate laws and regulations. Fifth, we will allow banks and insurance institutions to increase capital through multiple channels. Although banks' capital adequacy ratio is 14.6%, yet they still need to increase their capital to enhance their financial strength. Sixth, we will deepen the reforms of city commercial banks and rural credit cooperatives, research and develop the reform plan for financial asset managers, steer transformation of bank WM units and the trust industry, and build and refine the third pivot of pension security. Seventh, we will expand reform and opening up and accelerate the implementation of the financial opening measures. Eighth, we will uphold Party leadership and step up Party building to intensify anti-corruption in the financial system. Corruptions are widely seen in the financial sector, and we have solved a batch of corrupt cases with profound learnings, or at a heavy price. The CBIRC will continue to maintain a tough stance on corruption and unswervingly implement the decisions and plans of the CPC Central Committee.

The stable economy guarantees stable finance. As shown by the fundamentals, China will sustain sound economic growth over the long term and the advantages of socialism with Chinese characteristics have been justified by this pandemic. In the long run, China, which boasts a broad domestic market, diverse industries and high-quality talent, especially the large room for development in urbanization, will further unlock its potential and resilience for economic growth.

Next, the real economy and finance will complement each other to form a virtuous cycle. Overall, the top priority is to do our own business well. We believe that under the leadership of the CPC Central Committee, we will be able to overcome risks and challenges arising in the course of development and ensure stable and healthy economic growth. Thank you.

HK Economic Herald: What measures has the central bank taken to respond to increasing risk events in China's bond market? What are their impacts? What are the next steps? Thank you.

Chen Yulu: The bond market is at the core of China's direct financing mechanism and its stability matters. But so far, the pandemic has not directly led to higher defaults in China's bond market. Nor has the external volatility of global financial markets resulted in sharp fluctuations in China's bond market. So the market stays generally stable. Since February, statistics show that defaults have stayed at a normal level, with the number of players that have defaulted for the first time far lower than that of the same period last year.

Since the outbreak of the virus, the PBC has steered the National Association of Financial Market Institutional Investors to focus on three aspects of work, which have delivered significant impacts. First, quick services. We have helped the Association establish easy access for the registration and issuance of bonds. For hard-hit companies, in particular, quick services have been ensured in bond issuance, effectively addressing the possible continuity risk associated with capital flows. In February, a total of corporate bonds issued hit RMB 750 billion, more than doubling that of the same period last year. Second, offering facilitation. For the issuance of corporate bonds, the expiry dates for registration and filing have been extended, and fees for the registration, trading and custody of bonds have been deducted or waived. Third, risk prevention in advance. This means taking diverse steps to address potential default risk in advance. In line with market orientation and the rule of law, we have allowed rollovers and swaps of bonds for players in need to defuse default risk beforehand. Since February, bonds worth RMB 5.1 billion in the interbank market have been diversified.

With these measures, the direct financing mechanism for China's bond market has played a key role at this particular moment, and the overall market has stayed stable. Next, we will continue to watch the operations of hard-hit industries such as traditional clothing, labor-intensive manufacturing, and transport, and core players on the industry chain, and refine the disposal mechanism for bond defaults to ensure bond market stability. We will also offer stronger support for epidemic prevention and control and resumption of work in direct financing. Thank you.

Hu Kaihong: We are running out of time and will take one more question.

Xinhua Daily: I have two questions. The first is whether the global spread of the virus will have a reversing impact on China's exchange rate. As we have noticed, the RMB exchange rate against the US dollar has been depreciated recently. Will this impact China's cross-border capital flows, such as cross-border capital outflows at scale? Thank you.

Chen Yulu: The RMB exchange rate has concerned everybody. As you know, China's exchange rate system is a market-based and organized floating system that is regulated against a basket of currencies, with the market playing a decisive role. Recent years have seen ups and downs in the RMB exchange rate driven by the market, featuring two-way fluctuations. Due to the recent pandemic, global foreign exchange markets have fluctuated sharply, but the RMB exchange rate, despite some volatility, has remained in equilibrium and stayed generally stable. For example, the euro was devalued by 4.7% against the US dollar and the GBP, down by more than 12% against the US dollar. But in comparison, the RMB was down by just 1.8% against the US dollar. Overall, the CFETS RMB Index rose instead. In the future, the RMB exchange rate against the US dollar is expected to move around 7, with ups and downs and two-way fluctuations. China's foreign exchange market will stay stable. So will the expectations of the RMB exchange rate.

In the long run, the RMB exchange rate will move depending on the stability of economic fundamentals. As epidemic prevention and control efforts are yielding positive changes and the work resumption rate keeps rising, the fundamentals that sustain sound economic growth over the long term will offer a strong support for the stability of the RMB exchange rate. Meanwhile, in the financial market, the spreads between domestic and foreign currencies remain in a reasonable range, and China's foreign exchange reserves are adequate and stable. All of these have significantly shored up the continued stability of the RMB exchange rate. Thank you.

Xuan Changneng: I have a few words to add. Our recent observation shows that as the pandemic rages across the world, global financial markets are in heightened volatility, leading to higher risk aversion and rapid rise in the US Dollar Index, which surged by 6.8% in March 10-19. Despite greater external uncertainties, China's cross-border capital flows have grounds to remain generally stable in terms of the RMB exchange rate and the supply and demand in the foreign exchange market.

Firstly, the rise in the US Dollar Index is the result of strained US dollar liquidity in global markets. It is a technical rise that is not driven by economic fundamentals. Along with the rapid spread of the virus across the globe, risk aversion in the market has increased and global markets have become more volatile, leaving market players eager to get returns, thus stretching the US dollar liquidity and technically driving up the US Dollar Index. As we all know, the US dollar takes a large share in global economic and financial activities in terms of pricing, settlements or transactions, and this is why the US Dollar Index has risen rapidly these days.

Secondly, the RMB exchange rate remains relatively robust in global markets, which Mr. Deputy Governor has given a detailed explanation just now. In response to the quick rise in the US Dollar Index, other currencies have generally depreciated against the US dollar. From March 10 to 19, the euro and the GBP declined by 6.6% and 12.5% respectively against the US dollar, and the Emerging Market Currency Index went down by 3%, while the RMB exchange rate was devalued by a slight 2%. This shows that the RMB exchange rate against the US dollar has been passively brought down by the strengthening dollar, but at a margin lower than those of major global currencies such as the euro and the GBP, as well as emerging market currencies. Further, a basket of currencies show that the RMB exchange rate has risen by 2.7%.

Thirdly, the supply and demand in China's foreign exchange market is in balance. In February, China posted a surplus of USD 14.2 billion in banks' settlements and sales of foreign exchange and a surplus of USD 9.6 billion in foreign-related receipts and payments in non-banking sectors. With other supply and demand factors considered, such as forward sales and settlements of foreign exchange and options, the supply and demand in China's foreign exchange market have found a basic equilibrium. Market players including firms and individuals, as we have found, settle foreign exchange when the exchange rate is high and purchase foreign exchange when the exchange rate is low. This is a reasonable trading model, which shows the exchange rate, a price factor, has played a positive role in regulating the supply and demand in the market. Since March, the supply and demand in China's foreign exchange market have remained in balance.

The strained US dollar liquidity and the rising US Dollar Index will inevitably impact emerging market economies including China in the short run. So we need to tighten monitoring and respond proactively and properly. In the medium and long run, China's economic fundamentals, its currency and financial situations will strongly underpin the stability of China's cross-border capital flows and the RMB exchange rate will fluctuate in two ways within a reasonable range, with no ground for significant devaluation.

For this, Mr. Deputy Governor has given many reasons and I want to stress them once again. First, as the epidemic prevention and control are yielding positive changes, the work resumption rate is rising, trade is recovering, and macroeconomic policy support is being stepped up, which have provided a strong boost to the growth of the real economy.

Second, major economies' monetary policy rates have fallen in the zero or negative territory, while China's monetary policy rate remains in the normal territory, leading to high spreads between China and the rest of the world and increasing the RMB's value and attractiveness for global asset allocation. Here is a figure that can confirm this. The Fed has cut interest rates twice recently, resulting in expanded spreads between the US and China. From February 20 to March 19, the spread in 10-year treasury bond between China and the US reached a daily average of 1.72%, up by 40 basis points from January. Therefore, the level of spread can help maintain the attractiveness and value of RMB assets for asset allocation.

Third, as the RMB exchange rate formation mechanism is improved, exchange rates have been more elastic and the regulation capabilities of the foreign exchange market and its maturity have been on the rise, enabling China to better guard against and respond to risks arising from cross-border capital flows.

Therefore, we are confident that, as epidemic prevention and control and resumption of work progress under the strong leadership of the CPC Central Committee with Comrade Xi Jinping at its core, China's economy will remain sound in the long term and the goal of forestalling and defusing major financial risks will surely be achieved as scheduled. Thank you.

Hu Kaihong: This is the end of today's press conference. Thank you, speakers. Thank you, friends from the press.

(The original text is available at

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