The State Council Information Office held a regular policy briefing at 10 a.m. on August 5, 2019 (Monday). Mr. Chen Yulu, Deputy Governor of the People’s Bank of China (PBC) attended the meeting to brief on the financial support offered to facilitate regional reform, opening-up and innovation, and answered questions from the press. Mr. Wang Xin, Director-General of the PBC Research Bureau, Ms. Huo Yingli, Director-General of the PBC Macroprudential Policy Bureau and Mr. Zou Lan, Director-General of the PBC Financial Market Department were also present at the meeting. The transcript of the policy briefing is as follows.
Chen Yulu:
Ladies and gentlemen, friends from the press, good morning. I am glad to be here for today’s policy briefing. First please allow me, on behalf of the PBC, to extend our sincere gratitude to the friends from the press for your continuous attention to and support for our work for years.
At the 58th State Council Executive Meeting, arrangements were made for deepening pilot regional financial reforms, and enhancing the capacity of the financial sector in serving the reform and opening-up and bolstering the real economy. On this occasion, I would like to make a brief introduction in this regard.
Since the 18th National Congress of the Communist Party of China (CPC), the CPC Central Committee with Comrade Xi Jinping at the core proposed to pursue innovative, coordinated, green, open, and shared development, and required the financial sector to play a better role in serving the real economy under the guidance of the new development philosophy. The CPC Central Committee and the State Council have been paying high attention to pilot regional financial reforms. General Secretary Xi Jinping stressed that, efforts should be made to encourage local governments, community-level authorities and the public to emancipate the mind and explore proactively, facilitate differentiated experiments in different regions and promote positive interactions between central policymakers and localities. Premier Li Keqiang also noted that, pilot regional programs should be carried out to gain experience for comprehensive and in-depth reforms, and pilot programs of regional financial reform and innovation be advanced to find a path for financial reforms. In this regard, other State Council leaders, including Vice Premier Han Zheng, Vice Premier Liu He and State Councilor Xiao Jie, have also made important instructions.
In line with the decisions and arrangements of the CPC Central Committee and the State Council, and with a focus on the financial supply-side structural reform, the PBC, while remaining committed to the new development philosophy, worked with relevant authorities to implement pilot regional financial reforms in a targeted manner, and enabled the programs to cover China’s developed eastern coastal region, the central region aiming for industrial transformation, underdeveloped western region, areas with concentrations of ethnic minorities and border areas. The work involves financial inclusion for rural areas and micro and small enterprises (MSEs), green finance and fintech, as well as financial support for developing pilot free trade zones. In general, after much exploration of common problems, the pilot programs have delivered positive outcomes, and accumulated abundant experience that are beneficial to the future work.
First, in the area of financial inclusion development, the PBC launched pilot financial reforms in Lankao County of Henan Province, Lishui City of Zhejiang Province, and Taizhou City of Zhejiang Province to promote financial reforms in rural areas and for MSEs and private enterprises. With a focus on the three themes of “financial inclusion, poverty alleviation, and county area development”, Lankao made substantive efforts to enhance the sustainable development of inclusive finance. Lishui explored and accumulated a series of successful practices in mortgage loans with forest tenure rights as collateral, rural credit system construction and convenient money withdrawal service for farmers, etc. Meanwhile, Taizhou provided SMEs and entities in the real economy with financial services featuring precise supply and sound operation, which is replicated and applied nationwide.
Second, in the area of green finance development, pilot zones for green finance reform and innovation were established in the five provinces/autonomous regions of Zhejiang, Jiangxi, Guangdong, Guizhou and Xinjiang. Through these pilot programs, we have accumulated experience and practices for establishing green finance standards and project databases, setting up self-regulatory mechanisms for green finance, developing integrated information management platforms, innovating green finance products, and issuing special green bonds for municipal administration. The pilot zones have already become a showcase of the “Chinese Experience” in green finance development.
Third, in the area of coordinated regional development, the PBC has been providing proactive financial support to China’s major regional development strategies, including the coordinated development of the Beijing-Tianjin-Hebei region, the construction of Xiong’an New Area, the development of Shanghai as an international financial center, the integrated and high-quality advancement of the Yangtze River Delta region, as well as the development of the Guangdong-Hong Kong-Macao Greater Bay Area (Greater Bay Area).
Fourth, in the area of innovation-driven development, effective modes facilitating technological innovation, industrial transformation and upgrading, and the transition from old to new drivers of growth were sought for in the Wuhan metropolitan area of Hubei Province, Taizhou City of Jiangsu Province, and Qingdao City of Shandong Province, etc. For instance, with the mechanism which encompasses specialization in institution establishment, operation mechanisms, financial products, information platforms, direct financing and financial regulation, Wuhan developed a mode that enables life-cycle comprehensive financial services to technological industries, which has already been promoted nationwide by the State Council.
Fifth, in the area of deepening financial opening-up, in line with international standards, the China (Shanghai) Pilot Free Trade Zone (SHFTZ) and other pilot free trade zones have put financial institutional innovation at the core, continued their efforts to facilitate and liberalize trade and investment, and proactively explored new horizons of financial opening-up. Currently, several programs of innovation, including macroprudential management of all-system cross-border financing in both RMB and foreign currencies, and two-way cross-border RMB cash pooling business for multi-national conglomerates, have been replicated and applied nationwide.
In the next step, the PBC will earnestly implement instructions of the CPC Central Committee and the State Council, and continue pushing forward regional financial reforms.
First, we will continue propelling pilot regional financial reforms to serve the overall picture of macro policies. Following the requirements of macro policies, we will use multiple instruments in a coordinated way, look deeply into effective ways to cut financing costs for enterprises, especially private enterprises, MSEs, and sci-tech innovation enterprises, and advance the supply-side structural reform and high-quality development of the national economy through high-quality reforms of inclusive finance, green finance and fintech.
Second, we will advance with times and promote pilot programs of regional financial reform and innovation in a coordinated manner. We will channel financial support into major regional development strategies, including the development of Shanghai as an international financial center, and the integrated and high-quality advancement of the Yangtze River Delta region, bolster the rural vitalization strategy with regional financial reforms, focus on high-level financial opening-up, and fintech growth and regulation, and make more efforts to pioneer the reforms.
Third, we will put more emphasis on the due responsibilities of local authorities, on summarizing good practices of pilot zones, as well as on applying replicable experience wider and faster. Meanwhile, more attention will be given to preventing and defusing regional financial risks.
Fourth, we will establish a working mechanism of regional financial reforms subject to dynamic adjustments. Expired pilot programs that have reached reform goals will be terminated in a timely fashion. Whereas, for pilot programs really in need of in-depth exploration, the reform goals must be adjusted dynamically based on scientific assessment by a third party. In this way, we can form a healthy working mechanism featuring both advancement and withdrawal.
Journalist from China Central Television, China Media Group:
I would like to ask that, in order to support the national strategy of green development, what has China done in promoting green finance? China is now the only country that has established green finance pilot zones. What work has been conducted in these zones? And what are the plans of competent authorities to advance green finance development and pilot zone construction in the future? Thank you.
Chen Yulu:
Green finance has developed by leaps and bounds in recent years. Internationally, it’s also a hot-spot issue. Under the leadership of the CPC Central Committee and the State Council, the construction of China’s green finance system has achieved remarkable results. This is mainly reflected in four “most” as follows:
First, it has the most rapid market growth. Since China became the world’s largest green bond issuer in 2016, it has been ranking high globally in terms of green bond issuance and stock. Outstanding green loans have increased year by year, accounting for nearly 10% of aggregate corporate loans.
Second, it has the most complete policy framework. In 2016, the PBC and other relevant authorities jointly issued the Guidelines for Establishing the Green Financial System, officially introducing the world’s first top-level green finance system. Together with the supporting policies on green bonds, green credit, assessment and certification, and information disclosure, the policy framework is well-grounded to provide institutional support for regulated development of green finance.
Third, it has the most advanced regional pilot programs. With measures being adjusted to local conditions, the pilots all boast local characteristics. Notably, pilot zones in the five provinces/autonomous regions have accumulated the most advanced experiences for the construction of a national green finance system.
Fourth, it is the most active in global promotion. For the first time in 2016, China incorporated green finance as a topic for discussions at the G20 Summit. In the following year, together with other sponsor nations, China advocated the establishment of the Central Banks and Supervisors Network for Greening the Financial System (NGFS) and other green finance cooperation platforms. In 2018, “Green Investment Principles for the Belt and Road” was jointly initiated by China and the UK.
To continuously promote the reform and innovation of green finance, in June 2017, the State Council approved the establishment of regional green finance pilot zones in five provinces/autonomous regions. Over the past two years, the pilot zones have concluded three aspects of successful experience:
The first is to improve the incentive and restraint policy system, thus stimulating internal impetus of green finance market entities. According to incomplete statistics, over 20 special policy papers supporting green finance development have been released in the five pilot zones. Through monetary and financial policies, fiscal policies and a series of other policies, the pilot zones have well supported green finance development and mobilized market entities.
The second is to strengthen innovation of green finance products and service models, so as to meet diversified financing demands of different green projects. For instance, the pilot zones have successively launched nearly 200 items of innovative green finance products and instruments, such as financing with environmental rights used as collateral or pledge, and green bonds for municipal administration, thereby continuously broadening financing channels for green projects.
The third is to intensify risk prevention and control. In this regard, the pilot zones established the self-regulatory mechanism of the green finance industry, strengthened requirements on environmental information disclosure, and in particular, prioritized construction of the green finance standard system, so as to ensure the quality of green projects included in project databases and thus promote high-quality development of green finance.
In recent years, the PBC has continuously led the construction of a green finance standard system covering six sectors. In adherence to the principle of gearing to real needs and ensuring priority of urgent demands, drafts of one national standard and five industrial standards have already been prepared, and are now in the approval process. The preparation of other standards is also being advanced as scheduled.
In the next step, we will continue to promote the formulation of green finance standards and the launch of relevant programs. We will also work to ensure targeted implementation of such standards in the five pilot zones according to local conditions. Meanwhile, we will remain committed to the opening-up mentality, and actively promote the internationalization of green finance standards. In 2019, China issued the Green Industry Guidance Catalogue, and the EU released its Sustainable Finance Action Plan and solicited opinions worldwide. Hence, we would like to take this opportunity to start research on promoting integration of Chinese and European standards on green finance. Thank you.
Journalist with Economic Daily:
Deputy Governor Chen, you mentioned inclusive finance just now. How does the PBC improve financial services offered to weak links of concern, such as agriculture, rural areas and farmers and MSEs, by advancing regional pilot reforms of inclusive finance? You touched upon it just now, and could you please elaborate on the issue in greater detail? Thank you.
Chen Yulu:
Financial inclusion is a widespread concern of the society, as well as a priority in the regional pilot financial reforms. That is because inclusive finance is an important approach to eradicate poverty, implement the shared development philosophy and achieve social equity, as well as a focal point of China’s efforts to build a moderately prosperous society in all respects and realize rural vitalization. However, the key challenge in developing inclusive finance is global, namely how to achieve its business sustainability. The inclusive finance involves the initiatives to provide financial support for agriculture, rural areas and farmers, and for private enterprises and MSEs. As we can see, the “difficulties for enterprises to access loans” coexist with the “difficulties for financial institutions to issue loans”. The focus of the reforms is on how to generate a series of innovative products and models through the pilot reforms and eventually achieve sustainable development.
To this end, the State Council successively approved the launch of pilot regional reforms of inclusive finance in Taizhou City of Zhejiang Province and Lankao County of Henan Province. Both are characterized by expanding the coverage of financial services and boosting the availability of financing through applying fintech or digital financial technologies, accelerating improvements to the credit system and expanding products that can be collateralized or pledged. For example, in the Lankao pilot zone for inclusive finance, digital technologies are leveraged to integrate online and offline operations, so as to lower costs, promote competition and effectively improve the environment for financial businesses. Ever since the establishment of the pilot zone, the interest rates of loans issued to rural households and MSEs in Lankao County have been declining year by year. The proportion of rural households obtaining loans has increased significantly, reporting a growth of 34 percentage points.
In the Taizhou pilot zone for inclusive finance, the focus is mainly placed on how to enable private enterprises and MSEs to access more financial services and better financing. Zhejiang Province, where the private sector has been well developed with a considerable number of MSEs, has gained the experience of improving the social credit system, namely “two platforms and one fund”. One platform is the credit information sharing platform for financial services, with the PBC’s credit information database at the core. The other is the financing platform on which trademark rights can be pledged and the fund refers to the credit guarantee fund for MSEs established by local governments. Through the “two platforms and one fund”, MSEs can obtain credit enhancement. Meanwhile, credit guarantees are expanded, and cross-verification of risks is conducted by checking “character, product and collateral” as well as “electric meter, water meter and export customs declaration form”. By checking whether a business is performing well in terms of production and sales, we can manage to cross-verify its profile. This move has significantly improved the quality and level of credit risk assessment for private enterprises and MSEs and effectively addressed the difficulties in and high costs of financing of MSEs. So far, loans issued by commercial banks in Taizhou to private enterprises and MSEs have accounted for nearly half of total outstanding loans of such banks, and the non-performing loan ratio is even lower than the average. Therefore, the pilot reform in Taizhou is a successful practice.
Next, the PBC will follow the requirements of the CPC Central Committee and the State Council, summarize the experience of Taizhou and Lankao pilot zones, and gradually expand the pilot program of inclusive finance, so as to ensure that the pilot inclusive finance reforms can truly serve macro policies. Thank you.
Journalist with Hong Kong ET Net:
The materials noted that measures will be taken to expand channels through which Hong Kong and mainland residents invest in financial products in each other’s market. Charles Li Xiaojia, Chief Executive of Hong Kong Exchanges and Clearing Limited, also expressed his wish for a pilot program in the Guangdong-Hong Kong-Macao Greater Bay Area (Greater Bay Area) to enable commodities interconnectivity through London-Hong Kong Connect, Spot-Futures Connect and Futures Connect. Deputy Governor Chen, has any progress been made in this regard? Thanks.
Chen Yulu:
You asked a very good question, as it is about how the financial sector supports the cooperation and development in the Greater Bay Area. I would like to invite Wang Xin, Director-General of the PBC Research Bureau, to answer your question.
Wang Xin:
The Greater Bay Area is an essential area in our economic and financial development. There are frequent exchanges of goods and people among Guangdong Province, Hong Kong and Macao, and the area intrinsically features strong economic impetus and market demands and needs further integration and interconnectivity, which involves the financial sector. Certainly, since the financial sector has a wide impact and is prone to market fluctuations, we need to exercise policies discreetly to prevent risks. Promoting the development of the Greater Bay Area is an important decision made by the central government. In line with the outline development plan for the Greater Bay Area, the PBC follows the principle of “combining long-term and short-term considerations”, and explores implementation of relevant measures for financial reforms and financial interconnectivity. As I said just now, we need to ensure such policies adapt to the endogenous development demands of the market while preventing risks at the same time. That is why we are facilitating the work following the strategy of “combining long-term and short-term considerations”.
Recently, we have taken some important measures, which have commendably satisfied the demands of residents in Guangdong, Hong Kong and Macao. First, it’s been easier for Hong Kong and Macao residents to use mobile payment in the mainland. Hong Kong people used to say that mobile payment in the mainland was well developed, but they could not access it after coming here. Thus, measures have been taken to facilitate Hong Kong residents’ use of mobile payment in the mainland. Second, measures have been taken to accommodate Hong Kong residents with long-distance witness of settlement account opening at mainland banks. In this way, Hong Kong residents can open mainland Type II and III settlement accounts within Hong Kong with agency witness, facilitating their financial engagements and transactions. Third, a trade financing platform has been established with a pilot program leveraging the block-chain technology. At present, the trade financing platform has launched trial operation. Fourth, RMB overseas investment funds have been founded in Qianhai, Shenzhen. Fifth, the replication of free trade accounts is now permitted in the China (Guangdong) Pilot Free Trade Zone. These measures have been taken and will gradually deliver results.
In the next step, the PBC will work with relevant authorities to further promote cross-border trade, investment and financing facilitation, and financial market interconnectivity in the Greater Bay Area and improve financial services. The “Connects” you mentioned involve a variety of financial products, the function and usability of which will be prudently assessed in the next stage, so as to further boost financial interconnectivity in the Greater Bay Area, facilitate residents’ transactions, businesses’ financing and other activities, and better guard against risks. This is my simple answer to your question. Thank you.
Journalist with Reuters:
There are reports saying that a pilot program for RMB capital account convertibility is to be launched in the China (Shanghai) Pilot Free Trade Zone (SHFTZ). Could you please explain it in detail? Moreover, in terms of RMB exchange rate, it has weakened beyond 7 against USD in both onshore and offshore markets. What’s your comment on this issue? Thank you.
Chen Yulu:
With regard to the exchange rate, we have noticed the changes of the foreign exchange market, and the PBC will publish a release about officials taking press questions on its website. Please stay tuned. As for the financial support for developing Shanghai into an international financial center and advancing high-level financial opening-up, I’d like to invite Director-General Huo Yingli of the PBC macroprudential Management Bureau to answer your question.
Huo Yingli:
Thanks for your question. It’s my great pleasure to be here to respond to your concerns. You just mentioned the efforts to further promote RMB capital account convertibility in the SHFTZ. The PBC has long been highly concerned about RMB capital account convertibility, and has been advancing the work in an active and orderly manner following the arrangements of the CPC Central Committee and the State Council. As early as 2013 when the SHFTZ was established, the PBC introduced several trial measures there to promote RMB internationalization and capital account convertibility. Just now Deputy Governor Chen noted that the macroprudential management of all-system cross-border financing and two-way RMB cash pooling business for multinational corporations have been piloted in Shanghai, both of which involve capital account convertibility. Moreover, these pilot programs have delivered satisfactory results and are being replicated and scaled up in other free trade zones and even nationwide.
In recent years, another significant progress has been made in capital account convertibility, namely the enhanced opening-up of the financial market. We now have a lot of mechanisms for interconnection with Hong Kong, such as the Bond Connect, the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect. They all have brought about a substantial increase in RMB assets held by overseas investors. We also have commodities, such as crude oil futures, denominated in RMB. China’s stocks and bonds have been included into international mainstream indexes. All these changes have significantly advanced the opening-up of China’s financial market and improved capital account convertibility.
Here are some figures I want to share with you. By end-June, domestic RMB-denominated stocks and bonds held by non-residents have reached RMB3.7 trillion, reporting a surge of 25 percent from the beginning of the year. The growth has further soared based on the high level last year. Thus, it is evident that capital account convertibility has been improved significantly through the opening-up of financial market.
Next, we will further support the SHFTZ, as you have mentioned. The Financial Stability and Development Committee under the State Council unveiled 11 measures to promote financial opening-up in July, involving those to further ease market entry restrictions for foreign businesses, expand their business scope, and further open up the financial markets, especially the interbank bond market. These measures will continue to promote China’s capital account convertibility. Overall, most capital accounts in China are opened up to a relatively high degree, and currently only a few related to individual accounts remain unopened. In the future, we will promote the opening-up of the financial sector and market in an active and prudent way and further advance capital account convertibility. Meanwhile, the opening-up should be closely in tune with the overall macro conditions, aligned with financial regulatory capabilities and promoted in a steady and orderly manner. Thank you.
Host:
I have something to share with you. We are going to hold a press conference on the SHFTZ recently. Please keep abreast of our notice. Now, let’s move on to the next question.
Journalist with China News Service:
It was made clear at the State Council Executive Meeting that regional financial reforms and innovations should serve the big picture and follow macro policies. How would you interpret that? Thank you.
Chen Yulu:
Thank you for the question. Regional financial reforms and innovations should serve the big picture and follow macro policies. This suggests that regional pilot reforms should have a macro orientation, that is, it should meet the demands of macro state policies and be aligned with overall arrangements of the financial reform. Currently, the primary objective of the macro policies is to secure a steady growth of national economy through an effective macro management system. By “steady” we aim to stabilize employment, the financial sector, foreign trade, foreign investment, domestic investment and expectations, so as to prevent and mitigate major risks. By “progress” we endeavor to push forward supply-side structural reform, establish a modern industrial system, and achieve high-quality economic development. The regional pilot financial reforms should be subject to and serve the big picture, and this must always be kept in mind.
Another thing is, regional pilot financial reforms do shoulder the responsibility to explore the way of carrying out supply-side structural reform in the financial sector and preventing and defusing major financial risks. One example is the financial support for poverty alleviation industries. By supporting industrial development in rural areas, regions in poverty and extreme poverty, the progress of poverty alleviation is better consolidated. We provide loan financing to those industries, and two effective models of loans secured by “two rights” have been established in the pilot area, one with the management rights of contracted rural land, and the other with farmers’ housing property rights. However, in some areas with high forest coverage rate, it might be more feasible to use forest rights as collateral or pledge, so it is being promoted in Fujian, Guizhou, and Zhejiang. What’s more, unsecured loans for rural households are being granted in some places with good credit basis. These are all models based on local circumstances to support the development of inclusive finance.
Another issue is how to better support the growth of sci-tech innovation enterprises with fintech. In order to fulfill the demands of supply-side structural reform and high-quality development, it is necessary to support the advancement of sci-tech innovation enterprises. Besides, we have noticed that a large number of such enterprises are private enterprises and MSEs, so this would also help promote inclusive finance. Only if sci-tech innovation enterprises grow up and a modern industrial system come into being could major financial risks be prevented from the root. How to support such enterprises, and what measures should be taken at different stages in their life cycle? we are trying to find answers to these questions through the pilot programs. We are also exploring direct investment in sci-tech innovation enterprises by commercial banks through institutional innovation, so as to support the enterprises’ growth, for example, by issuing loans with intellectual property rights as pledges.
The primary principle and direction in the next stage of regional financial reform and innovation is to sort out the relation between the big picture and small parts, as well as the relation between the top-level design and pilot programs of the reform. Thank you.
Journalist with China Radio International:
Are there any problems with previous pilot programs? Why is it necessary now to arrange for deepening the pilot reform? Thank you.
Wang Xin:
Thank you for your questions. Regional financial reform has been steadily moving ahead. In the process, we have placed great emphasis on summarizing good experience in a timely way, and turning good practice into replicable and promotable experience which is then applied nationwide. At the same time, we have attached importance to making assessments, conducting timely reviews of problems or difficulties, and urging relevant local authorities to find solutions. As for why we move now to further our research into regional financial reform, of course, it is based on the evolving macroeconomic and financial situation. Although the pilot regional financial reform has witnessed smooth and satisfactory progress overall, there are noteworthy problems and challenges as well.
First of all, the current situation is highly complicated and uncertain. While financial reform mainly involves reform efforts to open up and to better explore the role of the market, special attention should be paid to properly handling the relationship between further advancing reform and opening-up and preventing risks in view of the complicated external situation and uncertainties. Therefore, there is a need to deepen relevant research.
Second, reform is a complicated and systematic project that calls for the collaboration of all parties concerned, such as that between central and local authorities and between relevant ministries. With the PBC taking the lead, regional financial reform involves other authorities so that coordination cannot be lacking. Especially when dealing with highly complicated problems, we need to better coordinate all parties concerned so as to deepen regional financial reform with joint efforts.
Third, we have found that local governments have great enthusiasm for regional financial reform. Their enthusiasm has proved to be important experience from and a major driving force for reform and opening-up in the past decades. It is fully understandable that local governments long for more pilot programs, with which preferential policies, even financial support and conveniences, will come along. And indeed, pilot programs have, in practice, contributed to local economic growth. However, in a small number of cases, the local government overemphasized its demand for preferential policies exclusive to its administrative area, deviating from the overarching objective or concern of the pilot regional financial reform, which is to pioneer the reform in some places for the purpose of accumulating replicable and promotable experience and innovating conditions for financial reform and opening-up as a whole. Deputy Governor Chen has elaborated on the importance of regional financial reform in big-picture terms. In case some local governments attach too much weight to preferential policies, work needs to be done to push for the improvement of relevant mechanisms and hold local authorities truly accountable, so that regional financial reform can achieve steady and sustained progress. Thank you.
Journalist with Wall Street Journal:
I just read online the announcement that the CNY/USD exchange rate has fallen below 7. I want to know what the PBC can do to stabilize market expectations. If the RMB further depreciates, leading to capital outflows, will the PBC strengthen capital control? What measures are in stock with regard to the interest rates?
Host:
Journalists get real-time information so fast in the age of the internet. I suppose relevant Q&As have been put online as this briefing goes on. They should have answered part of your questions. I wonder if Deputy Governor Chen and the directors-general have anything to add.
Chen Yulu:
This briefing is focused on regional financial reform. The last question you raised is about the interest rates, which relates to what we do to lower real interest rates for MSEs. So I’d like to invite Director-General Zou Lan to introduce our efforts in advancing regional financial reform and reducing financing costs for private enterprises and MSEs.
Zou Lan:
Since the beginning of 2019, in an effort to implement the decisions and arrangements of the CPC Central Committee and the State Council, the PBC has worked proactively to meet the fundamental requirement that financial services support the real economy. Efforts have been made to implement a sound monetary policy, maintain reasonable growth in money and credit, and optimize the credit structure. A lot of work has been done to reduce financing costs for private enterprises and MSEs, and has delivered positive results.
First of all, liquidity, capital and interest rate constraints on the credit supply of banks have been alleviated. The PBC cut the reserve requirement ratio by 1 percentage point at the beginning of the year, carried out medium-term lending facility (MLF) and open market operations, and used a mix of instruments to provide liquidity. Moreover, work was done to deepen market-oriented interest rate reform and ease interest rate constraints. The issuance of banks’ perpetual bonds, a breakthrough measure aimed at alleviating capital constraints, was backed up by Central Bank Bills Swap (CBS) operations, with the newly generated credit supply mainly going to private enterprises and MSEs.
Second, targeted measures were taken to improve the ability of the financial sector to serve the real economy. The guiding role of structural monetary policy tools was brought into play to provide targeted support for private enterprises, MSEs and other weak links in the economy. Timely adjustments were made to macroprudential assessment (MPA) policy parameters so that financial institutions would be guided to step up credit support for private enterprises and MSEs.
Third, to address the problem of collateral shortage for private enterprises and MSEs, the PBC encouraged and guided financial institutions to launch innovative financing products backed by intellectual property rights (IPRs) such as patent and trademark rights, so as to expand the scope of collateral. Some progress has already been achieved. For instance, the Bank of China launched the “Zhongguancun Model”, which recognizes the capital nature of core technology and patent rights for the purpose of credit enhancement for sci-tech innovation MSEs. The Bank of Beijing launched for private enterprises and MSEs innovative credit products, such as the “IPR Loan”, “Software Loan”, and “Energy Conservation Loan”, to provide financing backed by intellectual property rights, software copyright, and rights to future returns. The Bank of Ningxia launched the models of financing backed by forest rights, accounts receivable, inventory supervision, etc., which put the assets of private enterprises and MSEs into effective use.
At the same time, it should be noted that financing difficulties faced by private enterprises and MSEs are hard to tackle in the provision of financial support for the real economy. For their financing costs to be reduced effectively, financial supply-side structural reform needs to go deeper so that financial supply can be better matched with demand.
First, large banks should play a leading role while small and medium-sized banks should be guided to expand their customer base actively amid competition, so as to increase market competition for lending to private enterprises and MSEs.
Second, financial institutions should be encouraged to innovate and bring out financial products that better serve the needs of private enterprises and MSEs.
Third, work should be done to straighten out financing means suited to different stages in the life cycle of an enterprise, so as to create an institutional setting and market environment more conducive to direct financing by enterprises.
Fourth, we should streamline the dual-track lending rate system and remove the implicit lending rate floor, so as to channel more financial resources to MSEs and bring down real interest rates for loans.
With the rise in competition, banks will figure out solutions to problems such as collateral shortage and information asymmetry, thus bringing into shape a market-based, long-term mechanism of providing financial support for MSEs. Thank you.
