Guo Shuqing: Accelerate the normalization of economic activity
and further reform and open up the financial system
Speech by Mr Guo Shuqing, Party Secretary andDeputy Governor of the People's Bank of China
and CBIRC Chairman, at the 12th Lujiazui Forum "Shanghai International Financial Center 2020:
New Starting Point, New Mission, New Vision", Shanghai, 18 June 2020.
* * *
Honorable Secretary Li Qiang, Acting Mayor Gong Zheng, Chairman Yi Huiman,
Ladies and Gentlemen,
Good morning! It is a pleasure to attend the Lujiazui Forum 2020. To begin with, I would like to
express my warm congratulations to you for making this occasion possible. This year is unusual.
Though we are wide apart exchanging ideas through the video link, our hearts are still together.
In the past year, Shanghai achieved fresh results in its economic and social development,
making new progress in building an international financial center. In February this year, central
government agencies responsible for the financial sector, jointly with the Shanghai Municipal
Government, released the Opinions on Further Accelerating the Development of Shanghai as an
International Financial Center and Providing Financial Support for the Integrated Development of
the Yangtze River Delta, in which 30 concrete policy measures were proposed and are currently
being specified and implemented. Hopefully we can see the results sometime soon. Since the
COVID-19 pandemic broke out in the European and American countries, the global economy and
financial sector has suffered from a calamity never seen in a century. Nevertheless, when we
talk about crisis, we know there are also opportunities hidden inside. We believe that Shanghai
is bound to overcome difficulties and seize opportunities to play a greater role in the international
financial system.
The coronavirus has caught us all by surprise and has had an unprecedentedly impact on
China's economic and social development. In the first quarter this year, China's GDP witnessed
a 6.8 percent decline. Some enterprises ran into multiple difficulties including production
suspension, revenue slump and financial stress. For the import and export industry, problems of
disrupted supply, shortage of orders and blocked channels cast a shadow on their survival.
General Secretary Xi Jinping has attached great importance to coordinating COVID-19
containment and economic and social development. He delivered numerous important speeches
and personally took charge and made arrangements. The government agencies responsible for
the financial sector have resolutely implemented the decisions and arrangements of the CPC
Central Committee and the State Council to release numerous policy measures, pledging full
support to offset the adverse impact of the pandemic. The monetary policy is practiced in a more
flexible and appropriate manner, and the regulatory policy keenly focuses on the greatest risks. In
the first five months of this year, RMB loans issued to the real economy saw an increase of over
RMB10 trillion, which is over RMB2 trillion more than the increase in the same period last year. At
end-May, outstanding broad money supply (M2) increased by 11.1 percent year on year, and
outstanding aggregate financing to the real economy (AFRE) posted a growth rate of 12.5
percent year on year. The financial market and the financial system demonstrated great
resilience and endurance.
In the next step, the government agencies responsible for the financial sector will act upon the
requirements laid out by Vice Premier Liu He in his remarks just now, continue to focus on
keeping employment and businesses stable, ensure stability on the six fronts (employment, the
financial sector, foreign trade, foreign investment, domestic investment and expectations) and
carry out the task of maintaining security in the six areas (employment, the basic livelihood of the
people, market entities, food and energy, the stability of supply and industrial chains, and the
smooth functioning of grassroots administration), to accelerate the normalization of economic
activity
First, more efforts will be made to encourage cooperation between banks and
The damage caused by the pandemic is an irresistible external force from which
governments.
no market entity can avoid on its own. In this circumstance, governments at all levels have both
the responsibility and the capacity to provide information on the regional economy and
enterprises in the region to banking institutions. Quite a number of heavily-hit enterprises have
run into temporary difficulties. However, they have favorable market prospects and solid credit
records. Banks and governments should take active steps to negotiate and determine rescue
plans, and especially ensure that emergency financing is well in place for rolling over maturing
debt while guarding against moral hazards. Efforts should be made so that fiscal and financial
measures at multiple levels are in mutual support and close cooperation. Banks should introduce
more collateral-free credit products featuring low interest rates, while multiple levels of the
government should share costs and losses through interest and guarantee subsidies. To bolster
investment, governments should raise as needed the proportion of special local government
bonds that can be used as capital for projects, increase support with bank capital, and translate
into physical project progress as soon as possible.
Second, policy finance will be further leveraged in countercyclical adjustments. This year,
the total credit line of policy banks registered an annual growth of nearly RMB1 trillion, and bond
issuance will also increase, boosting available funds by a large margin. Additionally, China
Development Bank (CDB) and the Export-Import Bank of China (China Exim Bank) arrange
special funds of RMB100 billion to help market entities overcome difficulties. More than RMB100
billion of on-lending will be mainly provided to small and medium-sized banks, especially
Internetbased banks, so as to ease financing difficulties and reduce financing costs for micro and small
businesses (MSBs). The coverage of the government financing guaranty will be expanded and
guaranty fees reduced for a reasonable sharing of risk losses.
Third, insurance will better play its unique role in resisting risks. Efforts will be made to
expand the coverage of insurance against risks and increase the supply of business interruption
insurance and export credit insurance products. A greater variety of insurances will be introduced
for weak links such as pandemic containment, disaster relief, agriculture and rural areas. To
support reconstruction in the aftermath of the pandemic, the amount and efficiency of settlement
of claims should be increased to promptly provide all liable compensations to the individuals and
enterprises inflicted in the pandemic, so that they can receive the compensations at the earliest
time possible and resume production and consumption. Insurers should increase investment in
medium- and long-term corporate bonds. The average duration of insurance funds is 13 years.
At present, outstanding insurance funds amount to nearly RMB20 trillion, of which only RMB2.2
trillion is invested in corporate bonds, reflecting great potential. Insurers can use more funds to
purchase medium- and long-term corporate bonds, especially those issued by enterprises in the
industries that are in need of a huge amount of medium- and long-term funds, such as
telecommunications, transport, new and traditional infrastructure.
Fourth, the capital market will be supported to play a more positive role in a wider range
Since the beginning of this year, the volume of bond and equity financing has
of areas.
accounted for 35.9 percent of the increase in China's AFRE. At present, by market value, China
has the world's second largest bond market and stock market. China Banking and Insurance
Regulatory Commission (CBIRC) plans to release six measures in the near future to support
capital market development. First, we will introduce new institutional investors, by approving the
establishment of more wealth management subsidiaries of banks and insurance asset
management companies and allowing foreign specialized institutions to establish
foreigncontrolled wealth management companies. Second, we will step up the issuance of equity asset
management products by supporting wealth management subsidiaries to increase the proportion
of equity products, trust companies to issue securities investment trust products and insurers to
issue portfolio products. Third, we will promote in-depth cooperation between banks and fund
companies as well as between banks and insurers. Banks and their wealth management
subsidiaries will be encouraged to enlist more eligible managers of public funds as partners.
Research will be conducted on introducing policies concerning insurers' investment in privately
offered wealth management products and private equity funds. Fourth, we will guide commercial
banks to advance the orderly disposal of non-standard non-performing assets, and encourage
newly-established wealth management subsidiaries to increase securities investment. Fifth, we
will support insurers to ramp up investment in the capital market through direct investment,
entrusted investment, public funds and other channels, particularly the equity investment in listed
quality enterprises. Sixth, we will practice differentiated and proportion-based regulation on
insurers' allocations of equity assets and guide insurers to allocate more funds to equity assets.
Fifth, diversified financial instruments will be employed to smooth and restore the global
supply chain. Efforts should be made to increase financing support for enterprises in the
international industrial chain, so as to help them expand domestic and overseas markets and
raise the proportion of domestic sale of export products. Export enterprises should be bolstered
to resume business and trade exchanges with foreign partners at an early date, to stabilize
export orders through funding measures such as buyer's credit financing, and to leverage export
credit insurance share risk losses. Significant steps should be taken to vigorously advance the
supply chain finance, to give priority to the financial needs of leading enterprises and key links,
and to smooth and stabilize the upstream and downstream supply chains.
The COVID-19 pandemic has not only seriously impacted China, but also taken a great toll
on most other countries across the world. According to the forecasts of some international
organizations, the developed economies will plunge into the worst recession since World War
II and the emerging markets will contract for the first time in nearly 60 years. In the face of such a
calamity, all countries in the world should shelve differences for close cooperation. The global
system of labor division was gradually established and has evolved after decades of efforts. It is
the fruit of the close cooperation of countries following market rules and development trend, and
also plays a great role in promoting the world's economic and social development and improving
social welfare globally. Any ideas aiming to "knock down old schemes and put up new ones" or
"make a fresh start" are by no means economical. They will greatly damage the common
interests of the people in the world and cannot be realized in the short run.
Over the past few decades, China has made growing contributions to global economic growth,
and played a crucial role in tiding over several global economic and financial crises. China has
provided an inexhaustible flow of high-quality and inexpensive goods for other countries, which
laid an important foundation for sustaining "high consumption and low inflation" in developed
economies in the past 20-odd years. With its savings accounting for more than one quarter of
the world's total, China has made enormous contributions to the balance between the world's
gross savings and total investments and provided a massive amount of surplus funds for world
economic growth. Since the outbreak of the pandemic, the Chinese government has dispatched
medical expert teams and donated and exported a large amount of prevention supplies and
equipment, all of which are expected to play a key role in helping the world win the battle
against COVID-19. According to incomplete statistics, Chinese financial institutions have
donated over RMB200 million worth of anti-virus supplies to 70 countries and regions.
In terms of macroeconomic policies, the international community
should strengthen communication and coordination and make the greatest efforts to forge
synergy, so as to amplify positive effects and reduce adverse impacts.
large economies should actively consider the spillover effects of their policies and balance
First,
internal and external impacts. As the world economy has been highly integrated today,
communication and coordination with other countries should be enhanced when formulating and
introducing policies, so as to smooth out spillover risks and jointly safeguard the overall interests
of the international community. Developed countries like the US, European countries and
Japan have a particularly substantial impact on less-developed countries both adjacent and
beyond. In the dollar-dominated international monetary system, the US Federal Reserve System
(Fed), to some extent, acts as the world's central bank and plays a big part in the global
economic and financial stability. If the Fed focuses too much on domestic welfare in making
policies, the foundation of global financial stability may be undermined and the credit of the US
dollar and the US be overdrawn.
Second, we are all aware that this is not the Last Supper, so room must be left for the future.
Many countries have rolled out fiscal and financial incentives of unprecedented scale and
intensity. The impacts of the policies were very strong at the outset, but their marginal
utility is diminishing. For the time being, we have to coexist with the pandemic for a fairly long
time. As we know, quite a few countries and regions are considering additional incentives. It is
recommended that everyone think twice before action and reserve some policy space for the
future. China values very much the normal monetary and fiscal policies we are practicing now.
We will not flood the economy with liquidity, still less employ deficit monetization or negative
interest rates.
Third, there is no free lunch. How could so many central banks fire up printing presses to print
an unlimited amount of money? As early as more than 2,000 years ago, both China and Europe
suffered from economic and social crises arising from the governments' unrestrained coinage of
metal into money, not to mention a number of disasters the human society has undergone due to
similar reasons after the introduction of paper bills. Financial professionals must understand that
a price must be paid for any blank check.
a resilient financial system is usually a reflection of economic strength. However, while
Fourth,
the real economy has not restarted yet, the stock market has been surging. This is inexplicable.
The international financial market is running counter to the real economy, suggesting an
unprecedentedly marked distortion. "Internal debt is not debt, but external debt is debt. For the
US, even external debt is not debt," held some foreign experts. It seemed to be the case for quite
some time in the past, but can it last long in the future? The worry is hopefully unwarranted.
The fifth issue is whether inflation can be wiped out from the world economy, just like a
plague can be relieved by a special medicine. The rise of overall prices in major economies is
not evident yet at this moment. However, considering that it still takes a long period of time for the
global supply chain to recover, the costs of factors of production will continue to increase in the
future. Besides, many countries are continuously boosting demand, which may bring about
changes to the mechanism of derivative deposit creation. All these may lead to the resurgence
of inflation.
In addition, one more thing to consider is how to phase out massive stimulus policies in the
future. When a large-scale stimulus policy is introduced, everyone is cheering. It may be very
painful at the time of exit. The impact of the "quantitative easing (QE)" policy launched in 2008
has not completely dispersed so far.
I wish to take this opportunity to stress that, China will, as always, unswervingly
deepen the reform and enhance the opening-up of the financial sector. We will work to create a
market-oriented, law-based and internationalized business environment, improve relevant laws
and regulations, and advance the construction of the financial infrastructure. Domestic and
foreign institutions will be encouraged to cooperate on product design, equity investment,
corporate governance, talent cultivation, etc., so as to advance the participation of foreign
capital in the Chinese market. Steps will be taken to steadily push forward RMB
internationalization, gradually improve the settlement, trading and reserve functions of RMB, and
advance the free use of RMB. Support will be offered to regional financial reform and opening-up,
especially to the China (Shanghai) Pilot Free Trade Zone (SHFTZ). As an international financial
center, Hong Kong boasts unique advantages and abundant resources and is fully capable of
playing a bigger role. At present, as Shanghai is trying to build itself into an international financial
center, Shanghai and Hong Kong can establish closer ties, strengthen exchanges, complement
each other and make progress together. We will also keep close communication with Hong Kong
financial regulators to provide diversified services and create more favorable conditions for
consolidating Hong Kong's position as an international financial center and deepening the
financial cooperation between Shanghai and Hong Kong.
Finally, I wish the Forum a complete success, and I hope the development of Shanghai as an
international financial center be brought to a new height!
Thank you!