Yi Gang: Speech - 12th Lujiazui Forum
Speech by Mr Yi Gang, Governor of the People's Bank of China, at the 12th Lujiazui Forum
"Shanghai International Financial Center 2020: New Starting Point, New Mission, New Vision",
Shanghai, 18 June 2020.
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Honorable Vice Premier Liu He, Secretary Li Qiang, Mayor Gong Zheng,
Ladies and Gentlemen,
Good morning!
During General Secretary Xi Jinping's inspection tour in Shanghai last November, he noted that
Shanghai should "strengthen its function of allocating global resources
and actively allocate global resources, including capital, information, technology, talents and
goods", which pointed out the direction for the development of Shanghai as an international
financial center. The address by Vice Premier Liu He is very important and greatly instructive for
our financial work. I also fully agree with the discourse Secretary Li Qiang has just made in his
address on accelerating the building of Shanghai as an international financial center.
At the previous Lujiazui Forum, I proposed the "Five Centers" that we should focus on in building
Shanghai as an international financial center. Here, I would like to further discuss the "Five
Centers" with you.
First, Shanghai is becoming a center for RMB-denominated asset allocation. That is to
say, when world-class investors plan to invest in RMB-denominated assets, they will regard
Shanghai as their first choice. Global institutional investors can conveniently conduct
crossborder investment and financing activities here. Notably, China's economic fundamentals remain
sound, with monetary policy within the normal range. The RMB interest rates are at the lowest
level among developing countries, but there is a relatively remarkable positive spread compared
with the interest rates of major convertible currencies. In this sense, RMB-denominated assets
are fairly attractive for global capital allocation.
Second, Shanghai is becoming a center for risk management of RMB-denominated
After investing in RMB-denominated assets, investors, domestic and abroad,
financial assets.
are bound to diversify and manage their risks on a continuous basis. In Shanghai, all factors
related to risk management are improving. First, in terms of pricing, continuous pricing has been
realized for all classes of RMB-denominated assets. Second, in terms of transaction, the RMB
financial market enjoys adequate liquidity as well as sound depth and width, allowing buy-in and
sell-out at any time. Third, in terms of risk hedging, a basket of relatively complete risk
management tools, including financial futures, commodity futures, interest rate derivatives, and
foreign exchange derivatives, is in place to support effective risk hedging. Fourth, in terms of
information disclosure, the increasingly enhanced transparency and stringent requirements for
information disclosure in recent years continuously boost investors' confidence in
RMBdenominated assets. With the above four factors of risk management, investors are able to
manage and diversify risks in a more effective way.
Third, Shanghai is becoming a center for financial opening-up. The world's international
financial centers must be open, as opening-up is a prerequisite for attracting first-class financial
institutions and financial talents. In recent years, Shanghai has picked up its pace in financial
opening-up, with a host of world-renowned financial institutions setting up offices in the city one
after another, and the city has become much more attractive to top financial talents worldwide. In
the meantime, financial regulation capacity should be adaptive to and compatible with the level of
financial opening-up. Ensuring financial security amid financial opening-up brings about true
security.
Fourth, Shanghai is becoming a demonstration center for high-quality business
environment. A market-oriented, law-based and internationalized business environment is
gradually taking shape in Shanghai. As professional institutions, such as financial courts and
financial arbitration agencies, have been established in succession, Shanghai has become the
best proving ground for innovative financial operation rules and standards. In its development as
an international financial center, Shanghai can further pioneer the capital account
convertibility and the facilitation of RMB as a freely usable currency. As long as the regulation
requirements for combating money laundering, terrorist financing and tax evasion are met,
funds for normal trade and investment activities can flow into and out of Shanghai freely.
Fifth, Shanghai is becoming a Fintech center. As Fintech is indispensable for the
development of Shanghai as an international financial center, currently it is accelerating the
pace in building itself into a Fintech center. Efforts have been made to explore the wide
application of artificial intelligence, big data, cloud computing, and other new technologies in the
financial industry.
Regarding the progress of developing Shanghai as an international financial center, Shanghai
Financial Work Bureau collaborated with two universities on a very inspiring professional
assessment. I have studied it carefully, and found it fairly objective.
Next, taking this opportunity, I would like to brief you on the work of the People's Bank of China
(PBC) in practicing sound monetary policy in a more flexible and appropriate
manner and implementing the requirements of the Government Work Report on securing market
entities in the fight against the COVID-19 pandemic since the beginning of this year.
First, by leveraging quantitative monetary policy tools, we expanded aggregate supply
with a focus on easing financing difficulties.
In H1 2020, with respect to monetary policy, we rolled out a mix of forceful supporting measures,
including three rounds of required reserve ratio (RRR) cut, additional RMB1.8 trillion quotas for
central bank lending and central bank discount, a program for supporting credit-based loans to
micro and small businesses (MSBs), and the phased deferment of loan principal and interest
repayments for micro, small and medium-sized enterprises (MSMEs).
These measures have yielded solid results. At end-May, the growth rates of broad money (M2)
and the aggregate financing to the real economy (AFRE) reached 11.1 percent and 12.5 percent
respectively, both remarkably higher than those of last year. The stock market, bond market,
foreign exchange market and RMB exchange rate were generally stable. Since Q2 2020, China's
major macroeconomic indicators have displayed favorable signs of recovery.
In H2 2020, we will continue to keep liquidity adequate at a reasonable level through monetary
policies, which is expected to bring about expansion in RMB loans by nearly RMB20 trillion and
growth in AFRE by over RMB30 trillion throughout the year.
Second, by advancing the market-based interest rate reform, we guided a continuous
decline of market rates and promoted the financial sector to reasonably mark
down profits to support enterprises, in an attempt to alleviate high financing costs.
Since the beginning of 2020, the financial sector has marked down profits to support enterprises
in three ways, namely lowering interest rates, adopting monetary policy tools that can
directly support the real economy, and reducing banks' charges. It is estimated that, with
these measures, the financial system will mark down RMB1.5 trillion worth of profits to support
enterprises throughout the year.
Third, by strengthening write-offs and disposal of bank non-performing loans (NPLs), we
made efforts to solve the sustainability problem related to the support of the financial
sector for the real economy. Under the impact of the pandemic, bank NPLs will edge up. In this
sense, strengthening disposal of non-performing assets is crucial for enhancing the sustainability
of banks' support for the real economy. This is also an important aspect of the financial sector to
bear the costs of the real economy, which is deemed as the financial sector's contribution to the
real economy.
We believe that the financial support policies in response to the COVID-19 are phased policies.
Therefore, regarding policy design, focus should be placed on ensuring incentive compatibility
and fending off moral hazards. We should pay attention to the "aftereffects" of the policies, keep
the aggregates at appropriate levels, and consider in advance the reasonable timing of exit
for the policy tools.
Fourth, we achieved effective money and credit growth while keeping the PBC's balance
sheet basically stable. The PBC has lowered the RRR ten times since 2018, releasing about
RMB8 trillion of liquidity and bringing the average RRR down from 15 percent to the current nine
percent. A reduced RRR will correspondingly increase the money of commercial banks at their
disposal and thus boost the money multiplier. The process of RRR cuts, on one hand, was
reflected in the shrinking of the PBC's balance sheet. On the other hand, it was reflected in the
monetary expansion effect, as commercial banks could issue more loans. In the meantime,
however, the PBC "expanded its balance sheet" by increasing the scale of central bank lending,
central bank discount and adopting other monetary policy instruments. RRR cuts and scale rise
in central bank lending are both expansionary monetary policy tools, yet when reflected in the
PBC's balance sheet, the former leads to balance sheet shrinking while the latter results in
balance sheet expansion. In recent years, the values of the PBC's balance sheet shrinking and
expansion have been basically equivalent. Therefore, the size of the balance sheet has been kept
basically stable at around RMB36 trillion. This mechanism differs from those of the world's major
economies, whose central banks substantially expanded the size of their balance sheets.
However, the commercial banks in China have been expanding their balance sheets in a
continuous and reasonable manner, with loans growing relatively rapidly. This demonstrates the
improved efficiency of monetary policy transmission and the sound functioning of market
mechanism.
Thank you!