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At the press briefing held by the State Council Information Office (SCIO) at 4 p.m. on January 13, 2023 (Friday), Xuan Changneng, Deputy Governor of People’s Bank of China (PBOC), Ruan Jianhong, Director-general of the Statistics and Analysis Department of the PBOC and PBOC spokesperson, Zou Lan, Director-general of the Monetary Policy Department of the PBOC, and Ma Jianyang, head of the Financial Market Department of the PBOC briefed on 2022 financial statistics and answered questions from the press. The transcript is as follows.

Shou Xiaoli, Deputy Director-general of the Press Bureau of the SCIO and SCIO spokesperson: Ladies and gentlemen, good afternoon! Welcome to the second press briefing held by the SCIO this afternoon. Today with us is Mr. Xuan Changneng, Deputy Governor of PBOC, who will introduce financial statistics in 2022 and answer your questions. Here we also have Ms. Ruan Jianhong, the PBOC's spokesperson and Director-general of the Statistics and Analysis Department, Mr. Zou Lan, Director-general of the Monetary Policy Department, and Mr. Ma Jianyang, head of the Financial Market Department. Now, I will give the floor to Mr. Xuan Changneng.

Xuan Changneng, Deputy Governor of the PBOC: Friends from the media, good afternoon! Facing severer-than-expected impact from home and abroad in 2022, under the strong leadership of the CPC Central Committee with Comrade Xi Jinping at its core, the PBOC resolutely implemented the decisions and arrangements of the CPC Central Committee and the State Council, as well as the requirements of the Financial Stability and Development Committee under the State Council. It has strengthened implementation of sound monetary policies, and solidly implemented a package of policies and follow-up measures to stabilize the economy, so as to earnestly serve the real economy and firmly support the stability of the national economy. On January 10 this year, the PBOC released 2022 Financial Statistics Report to the public. The data show that China’s financial system operated smoothly in 2022, providing stronger and higher-quality support for the real economy.

First, liquidity remained adequate at a reasonable level, and credit aggregates enjoyed a more stable growth. In 2022, the PBOC lowered the required reserve ratio twice, injecting into the real economy long-term liquidity of over RMB1 trillion, and turning over surplus profits of RMB1.13 trillion to the central budget. The PBOC injected liquidity through multiple channels, such as central bank lending and discounts, the medium-term lending facility (MLF) operations, and open market operations (OMOs), providing a favorable liquidity environment for stabilizing the macroeconomic market. The broad money supply (M2) increased by 11.8% year on year, 2.8 percentage points higher than that at the end of the previous year; RMB loans rose by RMB21.31 trillion, an acceleration of RMB1.36 trillion from the year before; AFRE (stock) grew by 9.6%, and AFRE (flow) grew by RMB32.01 trillion, an additional increase of RMB668.9 billion as compared with the year before.

Second, credit support for key areas and weak links in the real economy was strengthened with credit structure being optimized on an on-going basis. In 2022, PBOC rolled out a number of structural monetary policy instruments in a timely manner to provide targeted support for the distressed groups and key areas, thus helping stabilize the national economy. Outstanding medium and long-term loans to the manufacturing industry increased by 36.7% year-on-year, 25.6 percentage points higher than the growth rate of all loans. Outstanding medium and long-term loans to technology-based SMEs in 2022 increased by 24.3% year-on-year, 13.2 percentage points higher than the growth rate of all loans. Outstanding loans to "specialized, sophisticated, distinctive, and innovative" companies increased by 24% year-on-year, 12.9 percentage points higher than the growth rate of all loans. Outstanding inclusive micro and small business (MSB) loans increased by 23.8% year-on-year, 12.7 percentage points higher than the growth rate of the balance of all loans. 56.52 million MSBs were supported, with a year-on-year increase of 26.8%. At the same time, the PBOC guided policy and development banks to inject into major projects RMB739.9 billion through policy-based and development-oriented financial instruments and, centered on supporting and driving infrastructure construction, made full and effective use of the newly added credit line of 800 billion. As of the end of 2022, outstanding medium and long-term loans to the infrastructure sector rose by 13% year-on-year, 1.9 percentage points higher than the growth rate of all loans.

Third, the overall financing cost for the real economy dropped remarkably. In the case of major European and American economies raising interest rates sharply and rapidly, China’s reform of loan prime rate (LPR) continued to release benefits. The year 2022 saw 1-year and 5-year LPR down by 15 basis points and 35 basis points respectively, bringing down the overall financing cost for the real economy. In 2022, the weighted average interest rate on newly issued corporate loans stood at 4.17%, 34 basis points lower than that of the previous year. At the same time, the PBOC established a market-oriented adjustment mechanism for deposit rates to stabilize the liability costs for banks. In 2022, the weighted average interest rate of new time deposits was 11 basis points lower than that of the previous year.

The year of 2023 marks the thorough implementation of the guidelines of the 20th CPC National Congress. Following the guidance of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, the PBOC will resolutely implement the guidelines of the 20th CPC National Congress and the Central Economic Work Conference. The PBOC will work unswervingly both to consolidate and develop the public sector and to encourage, support and guide the development of non-public sector, adhere to the key principle of prioritizing stability while pursuing development. The sound monetary policy will be precise and powerful with a focus on expanding effective demand and deepening supply-side structural reforms, thus contributing to the effective upgrading and appropriate expansion of the economic output.Thank you!

Shou Xiaoli: Now let’s move into the Q&A session. Please name your agency before raising questions.

Reuters: The Central Economic Work Conference mentioned that monetary policies should be precise and powerful to ensure the liquidity adequate at a reasonable level this year. Against this backdrop, is there any room for further cutting the interest rate and the required reserve ratio? Will the PBOC increase the use of structural instruments this year? Thank you.

Xuan Changneng: As was mentioned in the opening remark, sound monetary policies will play a better role in both expanding domestic demand and pushing forward supply-side structural reform. On the one hand, sound monetary policies will focus on supporting the expansion of domestic demand. The PBOC will work to keep liquidity adequate at a reasonable level and guide financial institutions to manage the intensity and pace of credit injection based on market-oriented principles and the rule of law. We will also take prompt measures at an early stage and coordinate monetary policies with fiscal and social policies, enhance support for enterprises to retain and recruit employees and for key crowds seeking jobs or starting business, and increase the income of urban and rural residents through multiple channels, so as to ensure that total social demand be strongly supported. But liquidity provision must also be reasonable and appropriate. We will refrain from a deluge of strong stimulus policies and strike a balance between maintaining stable economic growth and employment and seeking price stability. On the other hand, the guiding role of structural monetary policy instruments should be given full play to. We will continue to make effective use of the carbon emission reduction facility (CERF) as well as the special central bank lending for sci-tech innovation to expedite the building of a modern industrial system. We will also implement preferential policies such as inclusive MSB loan facilities and facilitate key infrastructure and major projects in energy, transportation, and water conservancy construction. Financial services for rural revitalization should be strengthened, and a high-level dynamic balance between effective supply and effective demand should be promoted.

At present, with the optimization of pandemic prevention and containment measures and the recovery of the economic circulation, the confidence of micro-entities will gradually recover and their vitality will be gradually released. We will continue to take measures to boost market confidence and stimulate the vitality of micro-entities. The first is to promote the reduction of comprehensive financing costs for corporations and consumption costs for individuals, and reduce the liability burden of micro entities, thus increasing consumption capability of residents and investment capacity of enterprises. The second is to work unswervingly both to consolidate and develop the public sector and to encourage, support and guide the development of non-public sector. Financial institutions will be guided to effectively strengthen and improve financial services, increase support for private MSBs in the manufacturing and service industries, and continue to promote the bond financing support instruments for private enterprises. The third is to encourage bulk consumption of housing and automobiles, etc., and strengthen comprehensive financial support for service consumption in key areas such as education, culture, and sports. The fourth is to keep real estate financing stable and orderly, adhere to the principle of "housing is for living in, not for speculation", and implement city-specific housing credit policies. Besides, it is essential to make good use of those policy instruments such as special loans and loan facilities for guaranteed delivery of housing to protect the legitimate rights and interests of house consumers. Programs of improving the balance sheet of high-quality real estate companies should be better implemented to effectively forestall and defuse the risks of high-quality leading real estate companies. Financial support policies for housing leasing will be improved to enable a smooth transition into a new development model for the real estate industry. Thank you.

Zou Lan, Director-general of the PBOC's Monetary Policy Department: I’d like to add a few words. Just now we have mentioned structural monetary policy instruments, which attract public attention. In the past two years, the PBOC has earnestly implemented the decisions and arrangements of the CPC Central Committee and the State Council, giving play to the role of monetary policy in adjusting both aggregate and structure. Structural monetary policy instruments are widely used,  and a number of instruments have been introduced since last year. In general, the structural monetary policies are "focused, reasonable, moderate, and flexible". As of the end of last year, the balance of structural monetary policy instruments was about RMB6.4 trillion. They played a positive role in guiding financial institutions to properly issue loans, promoting the flow of financial resources to key fields and weak links, maintaining a stable growth in aggregate money and credit, and stabilizing the macroeconomic performance.

Our structural monetary policies mainly focus on supporting key fields and weak links of the national economy such as inclusive finance, green development, and sci-tech innovation. Specific structural monetary policy instruments are regularly released on the official website of the PBOC, so you can keep an eye on them. Recently, we are working on rolling out several new structural instruments, mainly focusing on supporting the smooth functioning of the real estate market, including the loan support program for guaranteed delivery of housing and the housing rental loan facilities. We will make some additional detailed disclosures and announcements when they are introduced. Thank you.

Shangyou News: Data shows a year-on-year decrease in AFRE (flow) in December. Could you please account for the AFRE performance at the end of the year? How would you rate the overall AFRE performance in 2022? Thank you.

Ruan Jianhong, PBOC spokesperson and Director-general of the Statistics and Analysis Department of the PBOC: You’ve asked two questions on the AFRE in December and that throughout the year. I’ll start with the former.

Last December saw AFRE (flow) of RMB1.31 trillion, down RMB1.05 trillion year on year, which was mainly due to the big fall in bond financing. For one thing, government bond financing in the month totaled RMB280.9 billion, with a year-on-year decrease of RMB886.5 billion, as government bonds were issued earlier in the past year. New government bonds in the first 11 months amounted to RMB6.84 trillion, rising by almost RMB1 trillion year on year. Public finance also stepped up efforts to shore up the real economy in advance. For another, net financing of corporate bond, partly affected by fluctuations in the bond market, dropped by RMB488.7 billion in December, with a year-on-year decrease of RMB705.4 billion. Despite the smaller increase in AFRE in December 2022 compared with the same period of 2021, RMB loans issued by financial institutions to the real economy, an important part of AFRE, increased by RMB1.44 trillion in the month, RMB405.1 billion more than the increase in December 2021. This demonstrates that bank credit continued to bolster support for the real economy.

As to the second question, AFRE (flow) in the whole year reached RMB32.01 trillion, growing by RMB668.9 billion from 2021. It indicates strong financial support for the real economy. And the structure has some features.

First, financial institutions offered greater credit assistance to the real economy in 2022, as evidenced by new loans of RMB20.91 trillion—RMB974.6 billion more than those in 2021.

Second, net financing of government bonds maintained steady growth. In 2022, government bonds raised RMB7.12 trillion, with a year-on-year increase of RMB107.4 billion.

Third, for the record, off-balance sheet financing experienced a slighter decline. In 2022, new entrusted loans reached RMB357.9 billion, up RMB527.5 billion from 2021; trust loans fell by RMB600.3 billion, RMB1.41 trillion less than the decrease in 2021; and undiscounted bankers’ acceptances recorded a decrease of RMB341.1 billion, RMB150.5 billion less than the decrease in 2021.

Additionally, corporate bonds saw a smaller increase. In 2022, corporate bonds raised RMB2.05 trillion, RMB1.24 trillion less than the increase in 2021. Equity financing registered RMB1.18 trillion, which was on a par with that in 2021. Thank you.

Bauhinia Magazine: How was the growth of real estate credit in 2022? The meeting on credit work held a few days ago proposed a plan to improve the balance sheet of high-quality property developers. What new policies will be introduced to stabilize the real estate market? Thank you.

Zou Lan: Thank you for your question. The virtuous cycle of the real estate sector is of great significance to the sound development of the economy. The Central Economic Work Conference has made it clear that it is necessary to ensure the stable development of the real estate market, meet reasonable financing needs of the industry, and effectively forestall and defuse risks of high-quality leading property developers. Furthermore, city-specific policies should be implemented to satisfy rigid demand for housing and needs for improved housing, and the principle shall be upheld that “housing is for living in, not for speculation” to facilitate the real estate industry’s smooth transition into a new development model. In response to some adjustments in the real estate market, the PBOC has worked on both supply and demand sides along with relevant departments as planned by the CPC Central Committee and the State Council to promote the stable functioning of the real estate market. As relevant policies have gradually taken effect, we’ve observed marked improvement in the financing environment of the real estate sector, especially that of high-quality developers. This may be proved by two sets of data. From last September to November, real estate development loans increased by over RMB170 billion, RMB200 billion-odd more than the increment in the same period in 2021. Moreover, the last quarter of 2022 witnessed a 22% year-on-year rise, or an increase of more than RMB120 billion in new corporate bonds of domestic developers. According to the clear deployment of the Central Economic Work Conference, the PBOC and relevant departments recently put forward a plan to improve the balance sheet of high-quality developers, which is a critical part of the meeting on credit work jointly held by the PBOC and the China Banking and Insurance Regulatory Commission (CBIRC), and made public on the PBOC website. According to public disclosures,  the balance sheet of China’s real estate industry has expanded rapidly in the past decade, with the assets of the top 50 developers growing by 10 times and some even by 23 times. Additionally, the industry featured a fairly diverse liability structure, with only 31% of the liability funding from the financial sector(including 14% bank development loans, 9% domestic and foreign bonds, and 8% non-standard financing), as well as 30% from advances from upstream and downstream enterprises, 32% from individual advance payments for housing, and 7% from delayed tax payment.

To implement the arrangements made by the Central Economic Work Conference and prevent the spread of risks from problem developers to quality developers, relevant departments have drafted the Action Plan for Improving the Balance Sheets of High-quality Real Estate Companies (hereinafter referred to as the Action Plan). Particularly in support of those high-quality developers that focus on their core businesses and are characterized by compliant operation, good qualification, and systemic importance, the Action Plan stresses 21 tasks in four aspects, i.e., activating assets, sustaining liabilities, replenishing equity, and improving expectations. The combination of measures are aimed at improving the cash flows of high-quality developers and guiding their balance sheets back to the safety zone. Some of these tasks focus on the implementation of the policies already introduced, and some are new measures, such as launching the special central bank lending for national asset management companies and the loan support scheme for housing rentals. The Action Plan sets the criteria instead of giving a list of high-quality developers, which is left to the discretion of financial institutions.

Regarding the “three red lines” policy, which people are widely concerned about, the Action Plan makes it clear that the rules will be improved for the 30 pilot developers. While the general framework remains unchanged, there will be fine-tunings to some of the metrics.

So much for the question. Thank you.

Nikkei: Starting from December 2022, e-CNY in circulation has been included in M0 in the release of financial statistics. Would you please explain the reasons? Does it have anything to do with the official issuance of e-CNY in the future?

Xuan Changneng: Thank you for your question. As the digital fiat currency issued by the PBOC, e-CNY is essentially the same as the physical RMB and forms a portion of the money supply in China. That is why there is a need to put them together for statistical and analytical purposes and conduct coordinated management. In recent years, with the deepening of e-CNY pilot programs, the scenarios for e-CNY use have been expanding, while both the e-CNY trading volume and the outstanding e-CNY supply are on the rise. The rules on e-CNY management and statistics have also been improved continuously. E-CNY included, M0 statistics can reflect more accurately the aggregate of money in circulation. As of end-2022, e-CNY in circulation stood at RMB13.61 billion, and with this amount included, M0 saw a year-on-year growth rate of 15.3%.

It is a requirement set out in the 14th Five-Year Plan that e-CNY research and development be advanced prudently. In line with the requirement, the PBOC will move ahead with e-CNY research and development pilots in an orderly manner, continuously improve the top-level design and the building of the eco-system, enhance innovations of products and applications, and take steps to establish a sound management framework, so that the pilot programs will see further progress. We will follow up on the issuance of e-CNY and publish the relevant data in a timely manner in future releases of financial statistics. Thank you.

Tianmu News: The Central Economic Work Conference urged for concrete efforts to uphold the “two unswerving commitments” and give policy as well as public opinion support for the development of the private economy and private enterprises. So what does the PBOC plan to do to support the private economy? Thank you.

Ma Jianyang, head of PBOC Financial Market Department: Thank you for your question, which is a topic of common concern recently. Due to persistent COVID-19 impact and the volatile international situation, private enterprises have met with more difficulties amid considerable downward pressure on the Chinese economy. In line with the decisions and arrangements of the CPC Central Committee and the State Council, the PBOC has launched innovative structural monetary policy instruments, improved credit support policies, and expanded the diverse financing channels to constantly improve the financing environment for private enterprises and MSBs. As Deputy Governor Xuan Changneng has already given you detailed data on inclusive MSB loans, I’m adding the following. Inclusive MSB loans have seen a growth rate above 20% for four consecutive years. In November 2022, the weighted average interest rate on newly issued inclusive MSB loans was 4.9%, a low level historically. While the pandemic has impacted effective loan demand of MSBs and their repayment capacity, financial support has provided for them important backing and safeguards. For example, 30% of such loans have been granted repayment extensions based on market-oriented principles.

Going forward, the PBOC will conscientiously implement the arrangements of the Central Economic Work Conference, adopt a problem-oriented approach, focus on public concerns, and guide financial institutions to treat enterprises under all forms of ownership as equals in order to create a better financial environment for the development of the private economy and private enterprises. First, we will further ramp up credit support for private enterprises and MSBs. Just now Director-general Zou Lan has talked about what we have done to optimize the structural tools. We will make effective use of these tools with intensified effort. Second, we will further promote bond financing for private enterprises. Last November we improved the so-called “second arrow”, i.e., measures to support bond financing of private enterprises, and stepped up relevant work. As a result, RMB16.9 billion of bonds have been issued by private enterprises in less than two months. Next, we will further optimize the support mechanism and scale up bond financing for private enterprises. Third, we will further improve financial services for private enterprises and MSBs. Nowadays many banks offer services online and some issue loans in a matter of seconds. A lending deal less than RMB1 million can be reached instantly with a single click. This will further enhance financing services as well as the capacity to provide financing services for private enterprises in the future. Fourth, more work will be done to promote well-regulated and healthy development of platform companies. The rectification of financial businesses of large platform companies has delivered positive results, with most of the problems basically settled. We will further push it ahead and see it through. At the same time, we will improve routine supervision and support platform companies in their effort to enhance technological innovation and play an important role in leading development, creating jobs, and competing in the international market. Thank you.

Cover News: The Central Economic Work Conference put forward that measures needed to be taken to ensure stable development of the real estate market. What measures will the PBOC launch to achieve this goal? Some believe that cutting interest rates, especially mortgage rates, is needed to stabilize the real estate market. What is the position of the PBOC on this opinion? Thank you.

Zou Lan: Your first question can be covered by my answer to the previous question. So I will focus on your second question.

The mortgage rate policy impacts the specific interest rate determined through negotiation between a commercial bank and its customer, and the specific interest rate directly decides how much the customer needs to pay every month, so this policy is of vital importance. In late September 2022, the PBOC and the CBIRC issued a notice specifying that qualified local governments could, at their sole discretion, relax floor on first-home mortgage rates temporarily in the fourth quarter. Some local governments made adjustments accordingly, driving down the first-home mortgage rates to some extent. According to available statistics, the first-home mortgage rate averaged 4.26% nationwide in December, down 1.37 percentage points year on year, the lowest level ever recorded since 2008. The adjustment this time is mainly to establish a mechanism that allows dynamic adjustments to first-home mortgage rates. Based on the positive feedback of previous policies, we implemented city-specific policies and dynamically adjusted the scope of cities that are qualified for temporary relaxation on the floor of first-home mortgage rates in line with development of their real estate markets, in an effort to foster a long-term and effective mechanism conducive to stable and healthy development of the real estate market.

The National Bureau of Statistics (NBS) releases year-on-year and month-on-month changes in home prices in 70 cities each month; as for home price changes in other cities, relevant departments of local governments have the data. Analysis of the historical data of the 70 cities shows home prices witness obvious periodic fluctuations. Growth or decline for three consecutive months indicates a trend change. As such trend changes usually develop over a long time, the cycle for adjustments to the floor of first-home mortgage rates may be much longer than the assessment cycle once the adjustment is triggered, even though local governments assess home price changes every quarter according to the new policy. To put it another way, the mortgage rate policy is open to dynamic adjustments based on home price changes, and it can stay stable for a longer period afterwards. A long-term mechanism will allow two-way dynamic and flexible adjustments to first-home mortgage rate policies in line with the specific situation in each city. On the one hand, it will allow governments of cities whose real estate market is facing difficulties to make full use of policy toolbox; on the other hand, it will allow those whose real estate market is witnessing trend growth to make timely exit to foster stable and healthy development of the local real estate market. Thank you.

YICAI: What efforts did the financial regulators make to promote rectification of the platform economy in the last two years? And what progress has been made so far? Where will the policy go regarding rectification of the platform economy, including fin-tech regulation? Thank you.

Ma Jianyang: Thank you for your questions. I have touched upon this earlier, so now let me add a few points. Since November 2020, under the leadership of the CPC Central Committee and the State Council and according to the arrangements of the Financial Stability and Development Committee, financial regulators including the PBOC, CBIRC, and China Securities Regulatory Commission (CSRC) have guided 14 large platform enterprises including Ant Group to make solid rectification to prominent issues in their financial businesses, such as unlicensed operations, regulatory arbitrage, disorderly expansion, and violations of the rights and interests of consumers. Since then, regulators and the 14 platform enterprises have taken measures and achieved positive results. By now, the rectification has been largely completed. Large platform enterprises are committed to compliant operations and fair competition, showing a stronger sense of consumer protection and keeping their financial businesses compliant. Meanwhile, to tackle the issues from the root, financial regulators have stepped up efforts for institutional building. A series of policy documents targeting third-party payment, personal credit reporting, online deposits, insurance, securities, funds, etc. have been released, and an institutional framework for normalized regulation of the financial businesses of platform enterprises has been initially established, laying a good institutional foundation for subsequent routine regulation.

Moving forward, financial regulators will conscientiously follow the guidelines of the 20th CPC National Congress and the National Economic Work Conference, work unswervingly to consolidate and develop the public sector and to encourage, support and guide development of the non-public sector, put equal importance on development and regulation, and support healthy development of the platform economy. First, we will continue to urge relevant platform enterprises to address the remaining issues and complete the rectification. Second, we will upgrade routine regulation, further improve regulatory rules and mechanisms, and enhance the capacity for technology-powered regulation. We will support compliant operations of platform enterprises, develop financial businesses steadily and prudently, and maintain zero tolerance for financial activities that violate laws and regulations. Third, we will establish financial supporting measures to promote healthy development of the platform economy, and encourage platform enterprises to enhance their capacity for sci-tech innovation, to improve quality and efficiency of their services, to consolidate and strengthen international competitiveness, and to play a larger role in leading development, creating jobs, and participating in international competition. Thank you.

CCTV: What is the PBOC’s prediction about the Federal Reserve’s rate hike and its spillover effect in 2023 and is there any policy preparation for it? Considering the critical foreign trade situation, will RMB continue to appreciate? Thank you.

Xuan Changneng: Since 2022, major developed economies including the US, the Eurozone and the UK have tightened monetary policies substantially and raised interest rates sharply, which tightened the global financial system and squeezed cross-border capital out of emerging markets. The market has expectations for Fed rate hikes in 2023. As a large and resilient economy, China has adhered to normal monetary policies since the outbreak of the COVID. Instead of adopting strong stimulus policies, we have kept liquidity adequate at a reasonable level, providing stable financial support to the real economy. China’s financial system has become more independent and stable and the market’s expectations on the RMB exchange rate remain stable, which helps mitigate and cope with external risks, especially the spillover effects of interest rate hikes in developed economies. In general, the impact of monetary policy adjustments in developed economies on China is limited, but that on smaller emerging markets may be large.

Next, the PBOC will continue to implement a mix of policy measures to proactively and prudently respond to monetary policy adjustments in developed economies. We will continue to prioritize stability with focus on domestic issues, and well manage the pace and intensity in implementing the sound monetary policy according to domestic economic situation. We will enhance the flexibility of RMB exchange rate, and give play to its role as an automatic stabilizer in adjusting the macro economy and the balance of payments. Market entities will be guided to remain risk-neutral, and the macro-prudential management for cross-border capital flows will be enhanced. We will improve expectation management and keep the RMB exchange rate basically stable at an adaptive and equilibrium level. Especially, enterprises will be guided to properly hedge against risks and to remain risk-neutral.

Your second question is about the RMB exchange rate. The RMB has gradually shifted towards appreciation against the US dollar since mid-November 2022 when domestic policy measures for stabilizing the economy have achieved results and improved measures to contain Covid-19 and financial policies to support the real estate industry were launched. Apart from that, the US Dollar Index fell from a high level amid the expectations for a slowing Fed rate hike pace. On December 5, the spot rate of USD to RMB dropped below 7.0.

It is hard to make precise prediction about the RMB exchange rate over a short run, as it is and will be impacted by multiple factors including domestic and international economic and financial situations, the balance of payments, and market risk appetites. But generally speaking, there is a solid foundation for the RMB exchange rate to remain basically stable. The Chinese economy has been recovering from the pandemic with its containment measures improved dynamically. Our consumer prices have remained basically stable despite the worldwide elevated inflation. Considering the weakened business climate indexes in major economies, China’s trade surplus growth might slow down. Under the impact of multiple factors, the RMB exchange rate will remain stable overall. After years of financial reform and opening up, the breadth and depth of domestic foreign exchange market have been extended. The RMB exchange rate is more flexible and market expectations are stable. Cross-border capital flows in an orderly way and the balance of payments is autonomously balanced. Therefore, the RMB exchange rate will continue to remain basically stable at an adaptive and equilibrium level. Thank you.

Xinhua News Agency: Inflationary pressures in some countries have raised market concerns, and the PBOC also warned about future inflationary risks in a report. Is inflation likely to occur in 2023 according to the PBOC’s projections for China’s economy? And how will you respond to it if so? Thank you.

Zou Lan: It is true the sentiments are expressed in the Monetary Policy Report Q3 2022. And they sparked heated discussions. We’ve noticed that. Just as Deputy Governor Xuan Changneng said, last year, global inflation rose to a level unseen in decades. In sharp contrast, domestic consumer prices remained stable in general, which was not easily achieved. If we look back a little further, domestic consumer prices maintained an annual growth rate of 2% or so in the past 5-10 years. This fully demonstrates the superiority of the Chinese socialist system and the effectiveness of our macro adjustments. It should be attributed to our resolute implementation of the decisions and arrangements made by the CPC Central Committee and the State Council and to the coordinated efforts to stabilize the prices of energy, food and other key products with their supplies ensured. Meanwhile, we have adhered to a sound and normal monetary policy without resorting to a deluge of strong stimulus policies, which has created a favorable monetary and financial environment for stabilizing the consumer prices.

In 2023, we expect domestic inflation to remain at a modest level in general, but we also take heed of the possibility of its rebound. On the one hand, our supplies are ample and demands are recovering, and we did not issue excessive money, so prices are likely to remain stable. Currently, the domestic economy is still recovering, with industrial chains and supply chains running smoothly in general. The major issue is insufficient effective demand with a negative output gap. In the short run, the inflationary pressure is manageable in general. In the medium to long run, as China is one of the world’s major producers with generally balanced supply and demand, a sound monetary policy, and stable inflation expectations, China enjoys favorable conditions for keeping consumer prices generally stable. On the other hand, uncertainty still exists for price trajectory, so we should not take the inflation situation lightly and need to pay close attention to the possibility of rising inflation. Domestically, M2 growth rate has remained high for a period of time, the impact of which on prices may show later. With the launch of improved COVID containment measures, consumption potential will be released, and the rising demand may create certain inflationary pressures. Internationally, geopolitical conflicts continue to disrupt global energy supplies, and inflation in developed economies remains high, so we need to stay alert to imported inflation pressures.

Next, following the principle of seeking progress while maintaining stability, the PBOC will pursue the strategy of expanding domestic demand while deepening supply-side structural reform, focus on maintaining stable growth, stable employment, and stable prices, and implement the sound monetary policy in a more targeted and forceful manner. We will balance the short-term and long-term perspectives, economic growth and price stability, as well as internal and external equilibria. In addition, we will strengthen policy coordination to effectively upgrade and appropriately expand the economic output.

The Paper: By the end of December 2022, M2 grew by 11.8% year on year, up 2.8 percentage points from that at end-2021. Why did the M2 stay high? How will the M2 level change afterwards? Thank you.

Ruan Jianhong: Thank you for your questions. According to the published data, the M2 increased by 11.8% year on year to RMB266.43 trillion at end-2022. The growth rate was 0.6 percentage points lower than that at end-November, but 2.8 percentage points higher than that at end-2021. The relatively high M2 growth rate is mainly resulted from strengthened financial support from financial institutions to the real economy, which drove up money creation.

First, financial institutions’ investment in bonds increased significantly. In 2022, their bond investment grew by RMB6.92 trillion, an acceleration of RMB1.58 trillion year on year, of which, government bond investment accelerated by RMB1.39 trillion.

Second, RMB loans increased steadily. In 2022, RMB loans expanded by RMB21.31 trillion, up RMB1.36 trillion from that of the year before.

Third, financial institutions’ equity and other investment accelerated remarkably. In 2022, equity and other investment increased by RMB522.5 billion, an acceleration of RMB566.3 billion year on year.

Meanwhile, the PBOC handed over RMB1.13 trillion in profit to the central government, which pushed up the M2 growth by about 0.5 percentage points after fiscal spending.

In 2023, following the guidelines of the 20th CPC National Congress and the National Economic Work Conference, the PBOC will implement a sound monetary policy in a targeted and forceful manner, and maintain the intensity of credit support for the real economy. It is expected that the M2 will grow steadily and the liquidity will remain adequate at a reasonable level. Thank you.

Shou Xiaoli: Thanks to our speakers, journalists and friends. Today’s press conference concludes. See you next time!