SCIO briefing on maintaining financial market stability during COVID-19 epidemic
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E-mail SCIO, March 25, 2020
Hu Kaihong, spokesperson of the State Council Information Office, director of the Press Bureau of the State Council Information Office
Good morning, ladies and gentlemen. Welcome to the press conference held by the State Council Information Office. Today, we have invited Mr. Chen Yulu, deputy governor of the People's Bank of China, Mr Zhou Liang, vice chairman of China Banking and Insurance Regulatory Commission, Mr. Li Chao, vice chairman of China Securities Regulatory Commission, and Mr. Xuan Changneng, deputy administrator of State Administration of Foreign Exchange. They will brief you about China's measures to maintain financial market stability as COVID-19 spreads across the globe. Now I will give the floor to Deputy Governor Chen of the People's Bank of China.
Chen Yulu, deputy governor of the People's Bank of China
Good morning, dear friends from the press, ladies and gentlemen. Under the strong leadership of the CPC Central Committee with Xi Jinping at the core, China's prevention and control of the novel coronavirus is showing good results as more and more enterprises have resumed production and people return to their normal work schedule. Chinese people are steadily returning to their normal state of affairs and pace of life. To meet the requirements of epidemic prevention and control and those of the resumption of work, financial institutions have responded quickly and swiftly introduced targeted and effective policies and measures according to the decisions and plans of the CPC Central Committee and the State Council.
With some accurate and open market operations and targeted cuts to required reserve ratios, the People's Bank of China has provided short-, medium- and long-term liquidity, and maintained reasonably sufficient liquidity in its financial system. The financial market has been operating stably after opening on schedule. An RMB 300 billion special re-lending fund was established and the re-lending and re-discount quota was increased by RMB 500 billion to provide strong, targeted support for epidemic prevention and control and the resumption of work and production. Together with the China Banking and Insurance Regulatory Commission and some other government departments, we provide loan rollover or renewal for the private, small, and micro companies whose business has been severely affected by the disease to help them keep a steady capital flow and pull through. Meanwhile, we guide market interest rates lower to reduce the financing cost of the real economy.
Those above measures have shown some obvious results. The Chinese financial system is stable in general, and so are market expectations. Supplies of monetary credit have increased steadily, the Chinese economy has withstood the shock brought by the epidemic, and in doing so, China has made great contributions to stabilizing global economy and finance.
Many financial services are needed on the frontline during the combat against the epidemic, and Chinese financial workers have worked hard to provide them, some even sacrificed their lives. Until present, 1,137 employees of financial institutions were infected, and 42 lost their lives. In the process of fighting the epidemic, we have always adhered to the principle of strengthening Party leadership and Party development, and many excellent CPC members have worked on the forefront, upholding through their deeds their oath to the Party of remaining true to their original aspiration and keeping the Communist mission firmly in mind. There are many touching stories about them.
As the virus continues to spread worldwide, the international financial market has experienced intensifying turmoil, and the risk of global economic slowdown has increased. In this circumstance, the world situation is bringing big challenges to the development of the Chinese economy. At present, the epidemic is generally under control in China, the real economy is gradually improving, and the fundamentals sustaining sound economic growth over the long term remain unchanged. China's financial system will persevere and work in high spirit, resolutely implement decisions and policies of the CPC Central Committee, stick to the existing policy framework, adhere to law- and market-based rules, accurately grasp the changing situation of epidemic prevention and control and economic development, and calibrate our policies accordingly. We will also actively participate in international cooperation and tackle the challenges in a complicated situation according to the epidemic and economic situation of China. Thank you.
Hu Kaihong:
Thank you, Deputy Governor Chen. Next I will give the floor to Vice Chairman Zhou.
Zhou Liang:
Good morning, dear friends from the press. The spread of the novel coronavirus across the world and the volatility of the international financial market are the concern of all social circles these days. Under the leadership of the CPC Central Committee with Xi Jinping at the core, the Chinese people stood united and made joint efforts to achieve good results in the prevention and control of the COVID-19. Enterprises are gradually resuming production, and people's lives are back on their normal track. The China Banking and Insurance Commission, according to the unified plan of the CPC Central Committee and the State Council, has adopted a series of powerful and effective measures to ensure epidemic prevention and control on the one hand, and enhance financial services on the other hand. We have guided insurance institutions to support enterprises to resume their operation and to ensure the stability of the financial market. At present, the Chinese banking and insurance sectors are operating smoothly and steadily.
Next, we will follow the important instructions of Xi Jinping of coordinating epidemic prevention and control with the work to advance economic and social development, and attach equal importance to both. We will keep a close watch on both the development of the disease and the changes of the international financial markets, and keep to our bottom line of not letting systematic financial risks happen. While implementing the measures already issued, we should reserve some policies, and enable finance to play an active role. We are fully confident that we have the capability to win this people's war against the virus, and maintain social and economic stability. Thank you.
Hu Kaihong:
Thank you, Vice Chairman Zhou, next I give the floor to Vice Chairman Li.
Li Chao:
Good morning, dear friends from the press. The novel coronavirus has been spreading widely in the world recently, causing large adjustments in the international financial market. Many people are concerned about developments on the international financial market, and most of all, the situation of the Chinese financial market, including the stock market. Under the strong leadership of the CPC Central Committee with Comrade Xi Jinping at the core, epidemic prevention and control in China has been improving steadily, enterprises are resuming production, and people are gradually returning to their normal state of affairs in life. All these have played decisive roles in bolstering positive market expectations.
Compared to the international market, the Chinese financial market is generally stable. The A share market is resilient and shows good risk resistance, with fluctuations relatively low and investors more rational. This situation is a result of the continuous supply-side structural reform of China's finance system according to the plan of the CPC Central Committee and the State Council. During this reform led by the Financial Stability and Development Commission of the State Council, we have made some early preparations and arrangements, and have taken some effective measures to mitigate risks.
As to the capital market, we lowered the market leverages, the total leverage capital of the present stock market has decreased by 80 percent compared with its peak level in 2015. To handle pledged stock risks, we have also taken measures to reduce reserves and control increment, and our major risk index is showing an improving trend, the number of listed companies in which a large proportion of shares are pledged have decreased by one-third compared with the peak time. We have also optimized our transaction supervision to increase transparency, and further increased the clear expectations of the market to the supervision. We insist on reforming and opening the capital market. In 2019, we initiated the sci-tech innovaton board, trialed the registration-based IPO mechanism, and carried out some two-way opening-up measures.
Since the outbreak of the COVID-19, we have issued documents together with other state departments to make some special arrangements on raising capital for enterprises, providing support for some key regions and key industries, reducing fees and charges, and providing convenient services. These measures show our respect for market rules, and our commitment to helping enterprises to pass this difficult time as their regulatory organization, laying solid foundations for good market operation. The capital market has played its due function and operated steadily. Under the guidance and coordination of the Financial Stability and Development Commission, the A Share market re-opened after the Spring Festival. We have unswervingly adhered to the principle of letting market mechanisms play their role and avoid administrative interventions, and as a result, the self-adjusting function of the market has been greatly strengthened, which helped in safeguarding the smooth operation of the financial market, mitigating financial risks, and seeing a resurgence in investor confidence.
In the first two months of this year, share financing and debt financing on Chinese exchanges totaled RMB 1.3 trillion. This involved 38 IPOs, with RMB 72.4 billion of fundraising and RMB 90.1 billion of refinancing. The exchanges issued RMB 1.1 trillion in bonds, an increase of 30 percent over the same period last year. More importantly, great progress has been made in coordinating epidemic prevention and control with economic and social development. In March, all economic indexes showed obvious marginal changes. According to our surveys of listed companies, the work resumption rate surpassed 98 percent, higher than the national average. The liquidity of the financial market is reasonable and sufficient, the valuation of the stock market is at a historically low level. In general, the influence of the exterior environment on us is temporary, it will not change the steady growth trend of the Chinese capital market. Thank you
Hu Kaihong:
Thank you, Vice President Li, now I will give the floor to Deputy Administrator Xuan
Xuan Changneng:
Good morning, dear friends from the press. Since the outbreak of the COVID-19, staff of the State Administration of Foreign Exchange have earnestly implemented the guiding principles of the speeches made by General Secretary Xi Jinping, and we have coordinated our efforts in preventing and controlling the epidemic with those in promoting economic and social development under the guidance of the Financial Stability and Development Commission and according to arrangements of the Central Leading Group on Responding to the Novel Coronavirus Disease (COVID-19) Outbreak. We have continuously helped with the efforts to combat the disease and provided support for enterprises to resume production. According to our statistics, despite impact of the epidemic, the operation of the foreign exchange market remains stable. Now I will brief you on the foreign exchange supporting policy and the present situation of the forex market.
First, I will introduce the major work we have done recently.
The State Administration of Foreign Exchanges takes epidemic prevention and control and the support for enterprises to resume production as the top priority of our work. We listened carefully to the requirements of economic entities, including enterprises, to solve their difficulties related to foreign exchange, and did our best to increase our support in terms of foreign exchange policy. Firstly, we have continued to make good use of the forex service green channel policy to support enterprises resuming their production while paying attention to epidemic prevention and control. Secondly, we have improved the macro-prudential adjustment parameter and expanded the foreign debt borrowing space for enterprises. On March 12, the People's Bank of China and the State Administration of Foreign Exchanges jointly issued a document to raise the macro-prudential adjustment parameter from 1 to 1.25. After the adjustment, the upper limit of risk-weighted balance of cross-border financing increased from 2 times to 2.5 times that of the net assets of the enterprise. The foreign debt borrowing space of domestic institutions, excluding government financing platforms and real estate enterprises, has been expanded which allows small and medium-sized enterprises as well as private enterprises to make better use of domestic and international channels to raise funds. Thirdly, we are expanding the pilot program that facilitates cross-border financing by new- and high-tech enterprises. We will expand this program to Shanghai, Hubei, and Guangdong, allowing eligible new- and high-tech enterprises to freely borrow foreign debts of a value of less than US $ 5 million. Meanwhile, we will also help acquiring foreign debt for enterprises in the Haidian Park of Zhongguancun Science City in Beijing, to meet the demands of the new- and high-tech enterprises there to use foreign capital and lower their financial costs. Fourthly, we are actively using new technology means, such as cross-border financial blockchain platforms, to facilitate trade financing by medium-sized and small enterprises.
Second, I will briefly elaborate on the situation of the Chinese foreign exchange market.
In general, cross-border capital flow in China has remained stable and the supply and demand of the foreign exchange market are at a basic equilibrium, in spite of impact of the epidemic.
Firstly, the RMB exchange rate has fluctuated bi-directionally within a reasonable range. Since the beginning of this year, the exchange rate of RMB has been stable. By March 20, the spot transaction price of Renminbi depreciated by 1.4 percent, compared to the appreciation rate of 5.2 percent of the US dollar index in the same period, and the 13.4 percent fall in the currency indexies of emerging markets. The fluctuation of the international financial market has been more dramatic since late February. From February 21 to March 20, Chinese spot transaction price in RMB depreciated by 0.7 percent, and the currency indexes of emerging markets fell by 10 percent during the same period, and in the latter half of March, the Euro and British Pound suffered more declines than the RMB. These statistics show that the exchange rate of RMB is relatively stable in the global foreign exchanges market, especially on the emerging country market.
Secondly, the supply and demand of the Chinese foreign exchange market has maintained a basic equilibrium. In the first two months of 2020, Chinese banks had a surplus in settlement and sales of foreign exchanges valued at USD 20.6 billion, and the international payment surplus of non-banking sectors was USD 18.7 billion. Taking into consideration other supply and demand factors such as share options, China's foreign exchange market is basically balanced.
Thirdly, China's foreign exchange reserves are generally stable. By the end of February, the total amount of was USD 3.1067 trillion, which has been largely stable.
Influenced by the spread of COVID-19 worldwide and the sharp fall of the international crude oil price, the international financial market has experienced increasing turmoil recently. We will keep a close watch on the situation and react properly and prudently.
In the next stage, following the arrangements of the CPC Central Committee and the State Council, we will accelerate the implementation of measures to facilitate cross-border trade and investment, continue to improve the foreign exchanges business environment, and better serve the development of the real economy. Meanwhile, we will further improve the foreign exchanges administrative framework that integrates macro-prudential adjustment with micro-regulatory supervision to avoid cross-border capital flow risks and safeguard China's economic and financial security. Thank you.
Hu Kaihong:
Thank you, Mr. Xuan. Next we will open the floor for questions. Please identify the news outlet you work for before asking questions.
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