Yi Gang: Remarks - Financial Street Forum 2022
Remarks by Mr Yi Gang, Governor of the People's Bank of China, at the Annual
Conference of Financial Street Forum 2022, Beijing , 21 November 2022.
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Party Secretary Yin Li, Mayor Yin Yong, Managing Director Kristalina Georgieva,
General Manager Agustín Carstens, Ladies and gentlemen, Good afternoon!
Let me begin by extending my congratulations to the Beijing Financial Street on its
great development achievement over the past 30 years. Under the leadership of the
CPC Central Committee and the State Council, and with the vigorous support of the
CPC Beijing Municipal Committee and the Beijing Municipal Government, the Financial
Street has blazed a trail with Chinese characteristics and played a key role in China's
economic and social development over the past three decades.
Today, I would like to take this opportunity to share with you some of my observations
on issues related to monetary policy.
First, China's monetary policy has provided significant support to the real
economy. This year, the Chinese economy is faced with some challenges and
downward pressure due to COVID-19 and some external shocks, and we have
recalibrated monetary policy in a timely fashion so as to provide greater support to the
real economy.
According to the deployment of the CPC Central Committee and the State Council, we
have made use of a host of policy instruments and cut the required reserve ratio (RRR)
by 25bps. The drop in loan prime rate (LPR) has translated into lower financing costs
for the real economy, and broad money M2, social financing and new RMB loans have
all maintained pretty robust growth. Measured by economic performance, China's
macroeconomic policy has proven to be well-calibrated. We have kept the economy
stable, preserved price stability at home despite surging inflationary pressure
worldwide, and maintained a fine balance between internal and external equilibrium.
China's GDP grew by 3.9 percent year on year (YoY) in Q3. The CPI increased by 2.1
percent YoY in October and its annual growth rate has stayed at around 2 percent over
the past five years. Since the beginning of the year, the RMB has seen some
depreciation against the US dollar but of a smaller scale compared with other major
currencies. The value and purchasing power of RMB has been basically stable.
Second, while providing significant support to the real economy, the PBOC has
not substantially expanded its balance sheet. As of end-September 2022, the
PBOC's balance sheet was around $6 trillion (RMB40 trillion). Its size has stayed
relatively stable over the past five years with an average growth rate of 2.6 percent. In
recent years, we have used RRR cuts to provide medium and long-term liquidity. As we
know, commercial banks have to put aside a certain amount of deposits at the central
bank as required reserves. Cutting the RRR thus increases commercial banks' excess
reserves and allows them to lend more. As lower RRRs lead to higher money
multipliers, we have managed to support more credit creation in the absence of
significant balance sheet expansion. Since 2018, the PBOC has cut the RRR 13 times
and brought the average RRR down to around 8% from its previous level of 15% and
released a total of $1.5 trillion equivalent(RMB 10.8 trillion) long-term liquidity. In the
meantime, the PBOC's balance sheet has stabilized at around $5.5-6 trillion equivalent
(RMB38 trillion to RMB40 trillion). Yet outstanding M2 has increased to over $35 trillion
equivalent (RMB260 trillion) from less than $25 trillion equivalent (RMB170 trillion) at
end-2017, which is a telling evidence of substantive monetary support for the real
economy.
Raising the RRR has played a key role in keeping the RMB value stable and inflation
subdued for quite some time in the past. So cutting the RRR this time around has the
effect of releasing some of the "frozen-up" liquidity in the past. Since the beginning of
this century, China had experienced foreign reserves increasing for quite many years,
and the PBOC's balance sheet continued to grow. We had thus to constantly "freeze
up" the increasing RMB liquidity associated with the continuously accumulating foreign
reserves through raising the RRR and other sterilization operations. During this period,
the size of PBOC's balance sheet had grown much larger than those of our peers in the
major advanced economies.
In recent years however, we have by contrast, made many proactive decisions and
preemptive adjustments on liquidity supply through a host of measures ranging from
RRR cuts, open market operations, to structural monetary policy instruments. It is a far
cry from the previous situation when liquidity supply by the PBOC was mainly a passive
consequence of accumulation in foreign reserves. The independence of monetary
policy has increased noticeably.
Third, another feature of China's monetary policy is its combination of aggregate
and structural considerations. Our sound monetary policy not only includes
aggregate support, but also has structural characteristics. We have leveraged structural
monetary policy tools to enhance the financial support for agriculture, small and
medium enterprises(SMEs), the private companies and other structural weak links on
the supply side. As a result, finance has now become more accessible, available and
affordable.
As of end-September 2022, nearly 54 million SMEs have gained access to inclusive
loans, four times that of end-2017, with outstanding loans hitting $3.5 trillion equivalent
(RMB23 trillion). The weighted average interest rate on new inclusive loans issued in
September was 4.7 %, down by 180bps compared with the same period of 2017.
Different structural monetary policy tools can be either long-term or ad-hoc. Central
bank relending and re-discounts in support of the agrarian sector and SMEs, which you
are all quite familiar with and have an outstanding value of $360 billion equivalent (RMB
2.5 trillion), are typical examples of long-term tools. The typical ad-hoc tools that we put
in place in recent years, however, include the special-purpose relending facilities in
support of scientific and technological innovation, transportation and logistics,
equipment upgrading, etc. With an outstanding value of $430 billion equivalent (RMB3
trillion), these ad hoc instruments have well-defined expiration dates or exit plans.
When their policy goals are met, they will be phased out in an orderly manner.
Last but not least, I would like to talk about the role of structural monetary policy
in housing and green finance. China's housing sector is linked to a lot of upstream
and downstream industries. Therefore, its healthy development is of great significance
to the overall economy. The housing market is undergoing some adjustments. Joining
hands with relevant ministries and local governments, we have tailored policy solutions
to local specificities. Such tools include cutting mortgage rates and down payment
ratios, with an aim of supporting real housing needs. In some previous incidents, some
troubled developers were unable to complete pre-sold housing projects on time. In
response, we've issued $30 billion equivalent (RMB200 billion) worth of special loans to
ensure their timely completion, and have put in place structural policy tools to
encourage active participation by commercial banks. Meanwhile, we've also expanded
support for bond issuance by private firms, including private housing developers,
through credit enhancement facilities.
We've also rolled out a carbon reduction tool to foster green development. Operating on
market principles, this tool supports financial institutions' lending to enterprises focusing
on clean energy, emission reduction and carbon reduction. Tapping this tool, financial
institutions need to estimate and disclose the carbon cuts financed by such loans. This
will help promote the mentality of green development, and the practice of carbon
accounting and disclosure.
By the end of September 2022, around $35 billion equivalent (RMB240 billion) worth of
carbon reduction credit facility has been used, mobilized around $60 billion equivalent
(RMB400 billion) worth of carbon reduction loans, and financed carbon cuts of more
than 80 million tons. Recently, we've included two foreign-funded banks to the list of
financial institutions eligible for extending such loans.
Going forward, the People's Bank of China will continue to take Xi Jinping Thought on
Socialism with Chinese Characteristics as our guide and implement the guiding
principles set forth by the 20th CPC National Congress. We will continue to build a
modern central banking system, implement sound monetary policy to serve the real
economy, prevent financial risks and deepen financial reforms. We will also continue to
support the Financial Street in developing into the national center of financial
administration and in contributing even more to China's modernization.
Finally, I wish the Forum a complete success. Thank you!