The Joint Prevention and Control Mechanism of the State Council on Responding to the Novel Coronavirus Pneumonia held a press conference at 10 a.m. on February 7, 2020 (Friday). At the conference, Yu Weiping, Vice Minister of the Ministry of Finance (MOF), Pan Gongsheng, Deputy Governor of the People’s Bank of China (PBC) and Administrator of the State Administration of Foreign Exchange (SAFE), Wang Daoshu, Chief Auditor and Head of the Goods and Services Tax Department of the State Taxation Administration (STA), and Zhou Liang, Vice Chairman of the China Banking and Insurance Regulatory Commission (CBIRC) introduced the financial and fiscal policies for preventing and controlling the novel coronavirus pneumonia (NCP) outbreak, briefed on the initiatives taken to address difficulties in and high costs of financing for micro and small enterprises (MSEs), and took press questions. The transcript of Deputy Governor Pan Gongsheng’s introduction and responses to the questions is as follows.
Pan Gongsheng:
Friends from the press, happy Chinese New Year! First of all, I’d like to, on behalf of the PBC and the SAFE, extend our heartfelt gratitude to you for your long-standing support for financial work. Ever since the NCP outbreak, earnestly implementing the important instructions and orders given by General Secretary Xi Jinping, seriously putting into practice the decisions and arrangements made by the Central Committee of the Communist Party of China (CPC) and the State Council, and following the working arrangement of the CPC Central Committee’s Leading Group on Responding to the NCP Outbreak and the guidance of the State Council’s Financial Stability and Development Council (FSDC), the financial system has given top priority to the work of supporting epidemic control, and spared no efforts to provide financial support for the fight against the NCP.
First, the liquidity in the financial system has been kept adequate. In line with the requirements laid out in the FSDC meeting, the PBC injected a total of RMB1.7 trillion through open market operations, which was more than expected, on February 3 and 4, aiming to keep the liquidity in the banking system reasonable and adequate during the special period of epidemic control, signal the strengthening of countercyclical adjustments, and thus stabilize market expectations.
Second, financial markets, including money, bond, stock and foreign exchange markets, have reopened as scheduled and run smoothly. We have worked to enhance services offered by financial market infrastructure and ensure the proper handling of issuance, trading, clearing and settlement businesses in domestic financial markets, so as to maintain stable and effective market operation. The stock and foreign exchange markets are cases in point in particular: following dramatic adjustments on the first day of trading, over the last few trading days, the stock market stabilized and rebounded, and the RMB exchange rate continued to experience both ups and downs with modest two-way fluctuations. All this shows that China’s financial market has become more resilient and mature.
Third, measures have been taken to enhance financial support for epidemic control, ensure people’s well-being and support stable development of the real economy. On February 1, the PBC, the MOF, the CBIRC, the China Securities Regulatory Commission (CSRC) and the SAFE jointly adopted a total of 30 policy measures, requiring financial institutions in banking, securities and insurance sectors to optimize financial services, establish channels for services of payment, State Treasury, foreign exchange, cash, credit and financial infrastructure, simplify business procedures, reduce or exempt relevant fees, and maintain the continuity and convenience of financial services. Meanwhile, the PBC has decided to release RMB300 billion from special central bank lending, so as to support financial institutions to issue loans at favorable rates and strengthen financial support for key enterprises offering important medical supplies and daily necessities. We will continue to boost financial support for MSEs, private enterprises, the manufacturing sector and other key areas, increase credit loans and medium and long-term loans, and lower overall financing costs. As required, financial institutions shall refrain from blindly withdrawing, cutting or delaying loans issued to enterprises faced with temporary difficulties caused by the epidemic.
The policy measures taken by the financial system for epidemic control have won not only full recognition from the financial market and all sectors of society, but also applauds from the International Monetary Fund, the World Bank and the international financial community at large. It is generally acknowledged that the impact of the epidemic will be temporary and limited, China’ economy will continue to demonstrate extremely strong resilience, and the Chinese government has ample policy space to stabilize economic growth.
In the next step, following the strong leadership of the CPC Central Committee, the financial system will earnestly implement the arrangements made by the CPC Central Committee’s Leading Group on Responding to the NCP Outbreak, put into practice the 30 policy measures to ensure financial support for epidemic control under the guidance of the FSDC, enhance countercyclical adjustments in monetary policy, so as to safeguard the overall stability of the financial market, further reinforce financing support for heavily afflicted areas, better satisfy the demand of social entities for basic financial services and promote the sustained and sound development of the national economy. Thank you.
Journalist with Bloomberg News:

How will the epidemic impact China’s deleveraging policies? Will it result in more nonperforming loans? What is its impact on the fiscal deficit? Thank you.
Pan Gongsheng:

Thank you for your question. First, in recent years, as a joint result of multiple policy measures, China’s macro leverage ratio has remained basically stable, standing at around 250 percent over the recent ten quarters. Second, structural deleveraging has produced a marked effect. The leverage ratios of enterprises have been on a constant decline, with the recent two years seeing a drop of five to six percentage points compared to the 2017 highs. The leverage ratios of the household and government sectors tend to grow at a slower pace. Third, China has abundant policy tools to cope with the downward pressure on its economy. Among all the major economies in the world, China remains one of the few countries which are practicing a normal monetary policy. Fourth, when implementing the monetary policy, we need to take into account various factors which may affect internal and external balances, such as economic growth, leverage ratios, inflation expectations and exchange rates. During the period of epidemic prevention and control, when there is downward pressure on the economy, it is particularly important to maintain economic growth momentum. The PBC will carefully study and evaluate the monetary policy, properly handle its intensity and balance its role in supporting economic growth and stabilizing leverage ratios. Thank you.
Journalist with China Central Television, China Media Group:
As we know, the Chinese government has been attempting to lower financing costs for small private enterprises. How will the epidemic impact the difficulty in and high cost of financing which has been long faced by small and medium-sized enterprises (SMEs)? Are there any measures available to effectively relieve the financing strain for SMEs and private enterprises? Thanks.
Pan Gongsheng:
Just now Vice Chairman Zhou has properly answered your questions, and I’d like to add some points. During this epidemic, as MSEs and private enterprises are relatively vulnerable to risks and thus more prone to suffering from epidemic impacts, special measures should be adopted at a special time. A few days ago, five ministries jointly published a document, laying out 30 policy measures, of which many are made to provide financial support and aid for MSEs and private enterprises. The financial institutions in China, including banks, insurance companies and securities firms, have all stayed committed to their political stance, considered the overall situation and taken proactive actions. A number of them have introduced many internal policy measures to ease the financing burden for MSEs.
Under normal circumstances, the work to ease the financing difficulties for MSEs is a complicated and systematic project for the real economy and the supply-side structural reform of the financial sector. It entails perseverant and constant efforts. The CPC Central Committee and the State Council have paid much attention to the financing problems faced by MSEs and private enterprises and therefore taken a number of measures to address the problems. As of now, solid results have been achieved. Vice Chairman Zhou made this point clearly just now. There is no doubt that, this year and in the future, the financing problems of MSEs will remain a top priority of the financial system. We need to reform and improve our monetary policy, fiscal policy, regulatory policy and taxation policy, and optimize the policy environment and the incentive and restraint mechanisms for commercial banks serving MSEs. In broad terms, we need to guide and encourage commercial banks to carry out projects aiming at enhancing their capability to offer financial services to MSEs and improve internal policy support arrangements concerning resource allocation, performance appraisal, risk assessment, due diligence, liability exemption, and Fintech application. We will also work with local governments to improve the construction of credit information and risk sharing mechanisms.
As Vice Chairman Zhou said just now, with the perseverant and constant efforts of financial regulators and the entire financial system, I believe that this problem will be solved to a certain extent. Thank you.
Journalist with Market News International:
My question is for Deputy Governor Pan. Earlier this week, as the PBC injected liquidity and adjusted rates, we saw a marked decline in the interbank rates. So, how is the drop in the real lending rates? In the near future, will the PBC continue to lower the rate of medium-term lending facility (MLF) and thus guide the decline of lending rates? How intensely and frequently will the PBC continue to increase financing supply to stabilize the market and expectations?
Pan Gongsheng:
First of all, we know that on January 1 this year, the PBC announced to cut the required reserve ratio (RRR) by 0.5 percentage points and, as a result, released RMB800 billion of long-term funds. On February 3 and 4 when the markets reopened after the Spring Festival vacation, in order to inject liquidity to the market, the PBC conducted reverse repos worth RMB1.7 trillion through open market operations. The measures clearly indicate the resolve of the PBC to stabilize market expectations and to boost market confidence. For current open market rates, the 7-day and 14-day interest rates, standing at 2.4 percent and 2.55 percent, respectively, have decreased by 10 basis points. As the amount rises and rates drop, the entire financial market also witnessed the decline of interest rates. On February 6, the overnight and 7-day repo rates in the interbank market were around 1.8 percent and 2.3 percent, respectively, a quite steady trend on the whole.
As we know, the loan prime rate (LPR) refers to the most favorable lending rate calculated based on the quotation of 18 panel banks. Changes of the overall market rates would be reflected in the lending rates, and changes of interest rates in the financial and money markets would affect LPR expectations. It is very likely that under the current market expectations, the rates of the MLF and the LPR to be published on February 20 will both go down. LPR adjustments have strong impact on the loan pricing of commercial banks, and act as a guidance as banks decide their lending rate by adding basis points to the LPR. Banks then adjust the basis points added or subtracted when granting loans according to the development of market interest rates.
In the next step, as required by the State Council, the PBC will continue to analyze and assess the influence of the NCP outbreak on the Chinese economy. There is still ample space for macro-management policies. Among the world’s major economies, China remains one of the few that maintain a normal monetary policy. So we have abundant policy tools in our toolkit.
As for the monetary policy, first, we will strengthen countercyclical adjustments and ensure reasonable and adequate liquidity, thus providing a sound monetary and financial environment for the real economy; second, we will further liberalize interest rates, improve the LPR transmission mechanism, which I just mentioned, increase the transmission efficiency of the monetary policy, and reduce social financing cost; third, we will enhance the guiding role of structural monetary policy tools like targeted RRR cuts, central bank lending and central bank discount, and ramp up support for key areas and weak links in the national economy. Thank you.
Journalist with Phoenix TV:
It was reported that regulatory authorities would possibly postpone implementing the new regulations on asset management due to the epidemic. Is that true? If so, how long will it be postponed? Thank you.
Pan Gongsheng:
We are making assessments. There is a possibility for the postponement. The PBC and the CBIRC are making technical assessments.
Journalist with China Daily:
Recently, the PBC announced the provision of RMB300 billion through special central bank lending. How will the funds be used, and what will be done to ensure that they precisely target epidemic prevention and control? What does the PBC make of the current situation in financial markets, especially stock market and foreign exchange market fluctuations, and future market performance? Thank you.
Pan Gongsheng:
Vice Minister Yu has answered part of your first question from the fiscal perspective. To live up to its responsibilities and provide support for winning the battle against the epidemic, with the approval of the State Council, the PBC has made a special policy arrangement providing RMB300 billion in special central bank loans. The funds will be mainly used by national commercial banks and local commercial banks in the heavily hit provinces and municipalities to provide credit support at preferential interest rates for key enterprises engaged in the production, transportation or sale of vital medical supplies and daily necessities. As Vice Minister Yu just said, given that this is a special policy arrangement, we will follow a list of key enterprises recognized by the National Development and Reform Commission (NDRC) and the Ministry of Industry and Information Technology (MIIT). On the list are mainly key manufacturers of medical supplies and daily necessities, such as surgical masks, goggles, disinfectants, and sanitizers, that are essential to epidemic prevention and control. Financial institutions will be required to speed up the credit granting process and lend as soon as possible to the listed enterprises with the funds provided through special central bank lending.In respect to the cost of the special central bank lending, the PBC provides commercial banks with relatively low cost. Commercial banks are required to grant loans to the above-mentioned enterprises at favorable rates, i.e. no higher than 3.15 percent, which is one percentage point lower than the 4.15 percent LPR released last month. In practice, financial institutions have granted loans with rates ranging from 2.4 to 3.15 percent. Based on the loans, the MOF subsidizes 50 percent of the lending rates for the borrowers, which means with the loan granted, the key enterprises will bear a financing cost no higher than 1.6 percent. As this is a special policy arrangement, we must ensure these loans are used in an appropriate and targeted manner. For that purpose, we have adopted a list-based approach, jointly with the MOF, NDRC and MIIT, in an attempt to rigidly channel the money to enterprises engaged in disaster relief and emergency response, and to the most targeted areas. Meanwhile, we will keep electronic ledgers to track and monitor how the funds are used. The central government has also assigned the National Audit Office the subsequent supervision over fund utilization.
On February 3, China’s financial markets, especially the stock and foreign exchange markets, opened as scheduled, which reflected the central government’s resolution to respect market rules, the confidence of the government’s decision-makers, and the maturing financial markets in China. On the first day of market opening, marked adjustments were witnessed in A-share and onshore RMB exchange rate, which, I think, was within the public’s expectation. After that, the stock market stabilized and rebounded, with the RMB exchange rate fluctuating slightly on both directions, and cross-border capital flow as well as foreign exchange supply and demand basically stable. This evening, the SAFE will publish the foreign exchange reserve statistics of January, which shows a steady rise. Due to its high sensitivity, the financial markets are able to price risks rapidly. Therefore, after a short period of fluctuation following the market opening, the stock and foreign exchange markets largely resumed normal operation. We can find that the financial markets were, in a unique way, reflecting the confidence in the Chinese government to control the epidemic and in the future growth of China’s economy. As I mentioned, the influence of the outbreak on China’s economy is only temporary, without changing the fundamentals towards sound and high-quality economic growth over the long term. China’s economy has displayed remarkable resilience. The Chinese government has ample policy space to stabilize economic growth. Therefore, we are fully confident in the steady performance of both the stock market and foreign exchange market. Thank you.
Journalist with Reuters:
According to recent analyses and market expectations, the economy will see a sharp slowdown in the first quarter. Will it drop below 4 percent? Is it necessary to introduce aggressive economic policies, like interest rate cuts, RRR cuts and deficit ratio rises? Thank you.
Pan Gongsheng:
There have been lots of discussions and estimates on how China’s economy will perform in the next stage among economists, market institutions and government bodies. The PBC has also been closely monitoring economic performance and making some judgments. We believe that the influence of the outbreak on our economy is only temporary. As it coincides with the Spring Festival, the service sector including tourism, catering and entertainment has been afflicted. The extended holiday and delayed return to work would also hit industrial production and the construction industry. So we estimate that economic activities in the first quarter might be disturbed to a certain extent. However, once the epidemic is under control, the economy will soon recover to the level around the potential output. In 2003, China’s economy was disturbed by SARS in the second quarter and rebounded rapidly in the third quarter. Therefore, we believe our economy will rapidly stabilize when the disease is alleviated. Moreover, as the delayed consumption and investment will possibly be released, China’s economy will experience a compensatory recovery.
As I noted, owing to strong resilience and great potential of China’s economy, the fundamentals towards sound and high-quality growth in the long term will not be changed by the short-term epidemic. We still have ample space for macro adjustment policies. In regard to the monetary policy, China is still one of the few major economies maintaining normal monetary policies in the world. As a result, our tool kit is so fully equipped as to effectively offset the negative impacts of the epidemic. As for specific policies, as you asked at the end of your question, the PBC has been carefully analyzing and assessing the influence of the epidemic on our economy in a bid to enhance policy preparedness. Thank you.