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Distinguished Party Secretary Chen Jining, Mayor Gong Zheng, Deputy Director Wang Jiang, Governor Pan Gongsheng, Minister Li Yunze, Chairman Wu Qing, and dear guests,
Good morning! It’s a great pleasure to join you at the 2024 Lujiazui Forum. Now, in light of the current developments in the foreign exchange market, I would like to share some insights on expanding high-level financial opening-up and supporting the development of Shanghai as an international financial center.
Despite the complex and fast-changing external environment, China’s foreign exchange market has shown remarkable resilience this year. As the US inflation remains stubbornly high, the market expects that the Federal Reserve (Fed) will cut interest rates later and less extensively. Since the beginning of this year, the US dollar’s exchange rate and US treasury bond yields have generally rebounded, and volatility in the global foreign exchange market has increased, putting non-US currencies generally under pressure. Among them, Asian currencies have seen an accelerated depreciation recently, triggering widespread market concerns. Amid these increasingly diverse external challenges, China’s foreign exchange market has once again withstood the test and remained resilient. The RMB has experienced both appreciations and depreciations against other major currencies and has shown a generally upward movement against a basket of currencies, further stabilizing expectations for the RMB exchange rate. The balance of payments has maintained a basic equilibrium, with a reasonable surplus in the current account, continuing to stabilize the fundamentals of the foreign exchange market. Furthermore, there has been a growing interest among overseas investors in purchasing RMB assets, with China’s foreign exchange reserves remaining stable at over USD3.2 trillion.
Looking ahead, China’s foreign exchange market will maintain sound operations with a solid foundation and the RMB exchange rate will remain basically stable at an adaptive and equilibrium level. There are three factors underpinning this trend. First, more solid economic fundamentals. China is accelerating its efforts to foster new quality productive forces and promote high-quality development. As the implementation of macro policies picks up pace, the ongoing economic recovery trend will be further reinforced. The International Monetary Fund (IMF) recently raised its forecast for China’s economic growth this year to 5 percent, indicating its confidence in the nation’s development prospects. Second, enhanced market resilience. Chinese enterprises are enhancing their capabilities in innovative development, gaining experience in international operations, and becoming more competitive, all of which enable them to adapt better to external changes. Moreover, participants in China’s foreign exchange market have become increasingly mature, the exchange rate risk hedging tools have been more widely used, and the share of the RMB use in cross-border transactions has increased steadily, ensuring rational and orderly foreign exchange market transactions. Third, richer experience in coping with market fluctuations. Having successfully navigated multiple rounds of significant external shocks in recent years, China’s foreign exchange market has accumulated rich experience in risk response . Moving forward, we will continue to pay close attention to changes in the external environment and further enrich and make good use of the policy toolkit to guard against the risks of RMB exchange rate overshooting and abnormal cross-border capital flows.
Ladies and gentlemen,
Strong international financial centers are one of the core elements of a financial powerhouse. The Communist Party of China (CPC) Central Committee has entrusted Shanghai with a critical mandate to establish itself as an international financial center with global influence. In recent years, Shanghai, serving as a hub and gateway of China’s financial opening-up, has actively piloted new systems and explored new paths for the nation, and shored up weak links. The city has pioneered a number of reforms and leading opening-up measures in the financial and foreign exchange sectors, significantly enhancing its competitiveness and influence as an international financial center.
First, Shanghai’s financial market has become increasingly international. Through years of reform and development, Shanghai’s financial market has seen an improved structure. Various nationwide financial markets and infrastructure have been established in Shanghai. The stock and bond markets rank among the world’s largest in market size and have been included in multiple leading global indexes. In recent years, we have promoted the opening-up of the inter-bank and exchange-traded bond markets, leading to a continuous increase in both overseas investors’ holdings of Chinese bonds and foreign investment activities. As of end-May, more than 1,100 institutions from over 70 countries and regions had entered China’s interbank bond market, with foreign holdings totaling approximately RMB4.3 trillion, achieving an average annual growth rate of nearly 20 percent over the past five years.
Second, Shanghai has become a major magnet for financial institutions and capital. As the opening-up of China’s financial services has picked up pace, numerous foreign financial institutions have established themselves in Shanghai, making it the city with the highest concentration of foreign financial institutions in China. We actively support Shanghai in pioneering the pilot program of foreign exchange management for qualified foreign limited partners (QFLP) to attract foreign investment into leading industries such as biomedicine and information technology. Additionally, we have facilitated 163 multinationals to set up cash pools in the city, aggregating more than USD230 billion in foreign debt quotas and over USD70 billion in overseas lending quotas, enhancing the global capital management efficiency for enterprises.
Third, Shanghai’s financial sector has significantly enhanced its capability to support the real economy. In recent years, Shanghai has actively contributed to the building of a new development paradigm and effectively assisted enterprises in attracting global capital and expanding business overseas. The synergy of Shanghai’s development into a financial center and a sci-tech innovation center has grown stronger, and a number of innovative foreign exchange management policies such as facilitating cross-border financing for high-tech enterprises have been piloted in Shanghai. International connectivity and exchanges have expanded, foreign exchange services for overseas visitors to China have been enhanced, and the use of foreign exchange by international talents has been further facilitated. At present, licensed institutions in Shanghai can exchange currencies from 50 countries, covering most countries along the Belt and Road. This year has witnessed an over fivefold year-on-year increase in the number of overseas visitors exchanging foreign currencies in Shanghai as well as in the number of transactions and the amount exchanged. Moreover, the service system for enterprise exchange rate risk management has been more mature. Since early this year, the foreign exchange hedging ratio of enterprises in Shanghai has reached 35.7 percent, hitting a historic high.
Ladies and gentlemen,
Currently, the world economy still faces many challenges. Supporting and serving Shanghai’s development as an international financial center and boosting in-depth reforms and high-quality development through high-standard opening-up not only stand as inevitable needs for the financial sector to implement the guidelines of the CPC Central Committee, but also help enhance China’s contribution to the opening-up and development of global economy. With greater determination and strength, we will unswervingly promote high-level financial opening-up, proactively align with high-standard international economic and trade rules, expand institutional opening-up, and propel Shanghai’s development as an international financial center to new heights. We hope that Shanghai’s exploration can yield valuable experiences that will benefit the overall development.
First, we will enhance the quality of capital account opening-up to create a favorable environment for attracting more foreign financial institutions and long-term capital to invest and operate in China. We will also promote financial market connectivity and facilitate foreign investors in investing in domestic securities. We are revising relevant fund management regulations to further simplify and improve fund management for the scheme of Qualified Foreign Institutional Investor and the RMB Qualified Foreign Institutional Investor (QFII/RQFII) so as to facilitate the flow of patient capital. Moreover, we will support domestic institutions in making cross-border investments. Recently, we have granted quotas totaling USD2.27 billion to 53 institutions under the Qualified Domestic Institutional Investor (QDII) program to meet the reasonable demand of domestic residents for overseas investment. Drawing on the practices of global treasury centers, we are studying and improving policies for integrated RMB and foreign currency cash pooling and encouraging multinationals to establish global or regional fund management centers in Shanghai. Aiming at transforming Shanghai into a global asset management center, we will advance the regulated development of cross-border investment business of equity investment funds, assist the China Foreign Exchange Trade System (CFETS) in enhancing financial infrastructure functions and relevant services, and support the city in building a high-level international financial assets trading platform.
Second, we will enhance the quality of trade and investment cooperation, and strengthen financial support for Shanghai’s “five centers” initiative. Focusing on developing technology finance, green finance, inclusive finance, old-age finance and digital finance, we will improve foreign exchange services, further facilitate foreign exchange management for cross-border trade and investment, make it easier for business entities to access foreign exchange services, and enhance their satisfaction, so as to better support the coordinated development of Shanghai as an international economic center, shipping center, and trade center. We will expand cross-border financing for sci-tech enterprises and enhance services throughout the life-cycle of cross-border capital from entering to exiting sci-tech enterprises so as to support Shanghai’s evolution into a sci-tech innovation center with global influence.
Third, we will leverage Shanghai’s leading role to promote high-level coordinated financial opening-up across a broader region. We will encourage Shanghai to explore a foreign exchange management model that offers enhanced convenience to enterprises operating with higher integrity through policies such as pilot programs of high-level opening-up of cross-border trade and investment, reforms of banks’ foreign exchange business, and mechanisms ensuring that those who have fulfilled their duties shall not be held accountable. In addition, we will replicate and promote Shanghai’s high-level opening-up policies across the Yangtze River Delta and even the whole country in an orderly manner to achieve greater breakthroughs in the integrated development of the Yangtze River Delta and to foster new strengths for a higher-standard open economy.
Fourth, we will strike a balance between financial opening-up and security to ensure that Shanghai continues to pool financial resources and make a broader positive impact in a sustainable way. We will improve our abilities to manage financial opening-up and mitigate risks, strengthen the integrated regulation of the foreign exchange market from the perspectives of macro prudential management and micro regulation, deeply engage in international financial coordination and cooperation as well as global financial governance, and prevent risks from migrating across regions, markets, and borders, thereby fostering a sound interplay between high-quality development and high-level security.
Ladies and gentlemen,
General Secretary Xi Jinping emphasized that the goal of building Shanghai as an international financial center is correct, the progress is steady, and the prospects are promising. Let us uphold the principles of opening-up and cooperation, continuously break new ground in Shanghai’s development as an international financial center, and jointly make greater contributions to promoting global economic growth through high-quality financial development. Last but not least, I’d like to wish this forum a complete success!
Thank you!
