What China’s central bank chief said at his press conference, as it happened
Welcome to the South China Morning Post’s coverage of the press conference of China’s central bank officials on Friday on the sidelines of the country’s annual plenary meetings.
During the press conference in Beijing that began in the morning, People’s Bank of China governor Zhou Xiaochuan and other top PBOC officials discussed a wide range of economic issues including the yuan, market regulations, capital control and other financial risks.
Read on to see the highlights of Zhou’s comments as they flowed in. And thanks to all who tuned in for our live updates, which has now wrapped up.
Zhou said that in the wake of the 2008-09 global financial crisis, developed countries created about U$4.2 trillion liquidity through quantitative easing measures, as estimated by the International Monetary Fund. At least one-third of the money flowed to China. With the economic recovery of some developed countries, some money had now flowed out from China and other emerging markets as well, he said. China’s foreign reserve decline from its peak of US$4 trillion to US$3 trillion was “not bad”, he said, adding that reserves were meant to be used and that people should not overreact.
The central bank would cooperate with industry participants, including financial industry and technology firms, to develop inclusive finance, Zhou said, adding that the PBOC would grant incentives in credit policy. China still had large potential to develop inclusive finance, which was a main content of China’s poverty relief campaign, he added.
Zhou said China’s economy had the potential to grow. The 12 per cent M2 monetary growth target set in this year’s government work report was an expectation, not a task, the central bank governor said. “We will fine-tune financing and loans when necessary,” he said. Last year, home credit grew rapidly, which was expected to drive demand in a long chain of industries, according to Zhou. This year, mortgage loans are expected to continue to grow relatively fast. Zhou said the PBOC would properly balance growth, and that after policy adjustments, property loan growth was expected to slow moderately.
On third-party payment services, Fan Yifei, PBOC deputy governor, said the sector had accumulated lots of risks amid its rapid development in the past several years. The central bank has set up initial regulations and would pay more attention to its implementation. There were many players in the market, leading to over-competition, Fan said.
Meanwhile, he warned that internal risk control was loose as there was insufficient protection for investors. Investor data was sometimes leaked or their principal embezzled, he added.
On fintech, PBOC chief Zhou said the development of technology would lead to big changes of future payment services. China encouraged the development of financial technology, especially internet technology and virtual currency, and would cooperate with industry participants, he said. The PBOC would also try to prevent risks that might hamper the sector’s healthy development.
On corporate leverage, Yi Gang, vice-governor of the central bank, said China’s household and government leverage was not extremely high, but corporate leverage is relatively high globally speaking. Rising leverage could accumulate risks and a solution to reduce leverage was to develop direct financing, he said.
PBOC chief Zhou said companies with high leverage should reform themselves. Banks should not support such companies excessively. Financial institutions should help with the central government’s “reduce inventory, leverage and capacity” initiatives and supply-side reform.
Zhou said the PBOC had lots of tools to guide market expectation and prices, but the recent move to raise money market rates should not be overinterpreted. A prudent and neutral monetary policy would help structural reform. “A loose policy will not have enough pressure for reform,” he said, adding that financing difficulties would be eased gradually.
On the opening of China’s bond market, Zhou said Beijing was not implementing any special policies to aggressively pursue the inclusion of yuan-denominated bonds in any index, but was eyeing a gradual progress. Pan Gongsheng, head of the State Administration of Foreign Exchange, said China would create a friendlier environment in terms of legal system, accounting, auditing, taxation and ratings services, and enhance cross-border cooperation with other financial markets in a bid to make its bond market more attractive. As at the end of last year, foreign institutions and firms had issued more than 60 billion yuan of so-called panda bonds.
China’s financial regulation coordination mechanism studied the regulation of asset management businesses recently, Zhou said. There were different standards, lots of arbitrage opportunities and too strong speculation in the wealth management product market, he said. Financial products must serve for the real economy. The financial regulation coordination mechanism could be further improved to a “more effective level”, Zhou said.
On the US-China interest rate difference, Zhou said it was true that in the short-term, money flowed to countries where interest rates were higher. But for the medium-term, countries decide their interest rates based on economic growth, employment, confidence and inflation. Interest rate differences did not necessarily lead to persistent speculation and capital flow, he said, citing the example of Japan, which has kept its rates low for a long time.
Foreign exchange rate was stabilising following the stabilisation of the Chinese economy, structural reform progress and a resurgence of international confidence, Zhou said. There would be “ no big changes” in forex policy this year, but existing polices would be implemented “more delicately”. The yuan exchange rate should be relatively stable this year, he added. He also said fluctuations in the yuan exchange rate in the second half of last year were due to China’s accelerated outbound investments and surprises from US presidential election results.