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E-mail China.org.cn, February 7, 2024
Yicai:
Preventing and defusing financial risks, especially forestalling systemic risks, is essential for our financial work these years. Can you introduce measures to prevent financial risks, especially systemic risks? Thank you.
Pan Gongsheng:
Thank you. Preventing and controlling financial risks has always been a critical issue for the financial industry. The central government attaches great importance to this and has made systemic arrangements at the Central Economic Work Conference and the Central Financial Work Conference. I would like to share some points from a macro perspective on preventing and defusing financial risks based on the central government's arrangements.
First, balancing economic growth, economic structural adjustment, and financial risk prevention is essential. The economy underpins finance, and finance reflects economic performance. Many problems in economic performance can lead to financial issues and intertwine with financial risks. The key to eradicating the root of financial risks lies in balancing economic growth, economic structural adjustment, and financial risk prevention, namely achieving a balance between development, reform, and stability, which is often mentioned.
Second, we should strengthen financial supervision, improve mechanisms for risk prevention, early warning, and disposal, and ensure a robust financial safety network. Here are several points. First, we should enhance enterprise governance and risk management within financial institutions, which serve as the first line of defense for preventing and defusing major risks. Second, we need to tighten financial supervision, leverage the role of macro-prudential management, micro-prudential supervision, and behavioral supervision , and strengthen coordination among them to form an integrated effort. Third, advancing the construction of a financial safety network is essential. We need to improve our ability to monitor and evaluate risks and give early warning, and optimize early rectification mechanisms for financial risks with stringent restrictions. We need to establish a risk disposal responsibility mechanism that aligns authority with responsibility and is compatible with incentives. We should fully utilize the role of industry guarantee funds and financial stability guarantee funds and enhance the function of professional risk disposal of deposit insurance. Fourth, we will strengthen legal guarantees for financial stability, accelerating the creation of laws and regulations, including a law on financial stability.
Third, we should defuse risks in major sectors in an orderly way and mitigate overall financial risks. In recent years, a number of major risks have been effectively addressed, and financial institutions have generally maintained steady performance. Since 2023, various departments and localities have implemented effective measures to support the resolution of risks in real estate and local debts. Under the guidance of financial management departments, financial institutions have provided significant support to ensure the stability of financing channels for real estate enterprises, especially top enterprises. Recently, the PBC, in conjunction with the NFRA, will issue a policy on improving operating property loans, encouraging prominent real estate enterprises to revitalize stock assets, expand capital usage, and thus improve liquidity. The policy will be released either this evening or tomorrow evening. Local government debts are highly localized, and it is primarily a few underdeveloped areas that are facing debt repayment difficulties, exerting limited impact on the economic and financial aggregate. I provided a comprehensive explanation on this at a conference in Hong Kong in November 2023. The PBC will continue to collaborate with administrative departments of industries and local governments to provide financial support and defuse risks.
Fourth, we will coordinate financial openness with security, continually enhancing the level of financial risk prevention and control within the framework of an open macroeconomic landscape. First, in recent years, we have systematically promoted the opening of the financial services industry and financial markets, continually improving the facilitation of cross-border trade and investment. Second, we are deepening the reform of the RMB exchange rate mechanism, increasing exchange rate resilience, while simultaneously strengthening balanced macroeconomic governance of cross-border financial flows to maintain the stability of the foreign exchange market. Mr. Zhu Hexin provided some specific interpretations earlier. Currently, the foreign exchange hedging ratio for enterprises is around 25%, and enterprises have greatly increased their awareness of exchange rate hedging. At the same time, the proportion of RMB in cross-border trade payments has reached around 25%, reducing currency mismatch risks. These two 25% figures do not overlap because one pertains to exchange rate hedging and the other to using the RMB. Additionally, China's foreign exchange market operates more resiliently, with more mature market participants, and regulatory authorities in the foreign exchange market are more composed and experienced in the face of market changes. Third, we will advance international financial cooperation, actively participate in global financial governance, strengthen multilateral and bilateral dialogues, lead the establishment of China-U.S. and China-EU financial working groups, enhance coordination of macroeconomic policies, and jointly reinforce the global financial security network. Last week, the PBC and the U.S. Treasury Department convened the third meeting of the China-U.S. Financial Working Group, with Deputy Governor Xuan Changneng leading the Chinese delegation. Fourthly, we will refine measures for the secure management of financial industry data, ensuring safer and more convenient cross-border data flows with clearer regulations.
In the next steps, the PBC will resolutely implement the Central Committee's various arrangements for guarding against and defusing financial risks. We will adhere to a systemic approach and consider worst-case scenarios to ensure that the bottom line of preventing systemic financial risks is maintained. These are the four aspects I shared with you at the macroeconomic level. Thank you.
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