Ladies and gentlemen, distinguished guests, good afternoon!
First of all, I’d like to extend my congratulations on the upgrading of Financial Street Forum to a national-level forum.
Since the beginning of 2020, the COVID-19 pandemic has dealt a heavy blow to the global economy. Countries worldwide have made proactive responses, and timely launched vigorous macro policies to cushion the impacts. I’d like to take this opportunity to share two of my viewpoints on China’s monetary policy for your reference.
I. China’s monetary policy has responded in a timely and vigorous way, and aggregate has been maintained at reasonable and appropriate levels, thus fostering a favorable monetary and financial environment for securing market entities and stabilizing employment
Under the correct leadership of the Central Committee of the Communist Party of China (CPC) and the State Council, China’s economy has recovered steadily. During this process, under the guidance of the Financial Stability and Development Committee (FSDC) under the State Council, the sound monetary policy has been pursued in tandem with the proactive fiscal policy, and every effort was made to “ensure stability on the six fronts” (employment, financial sector, foreign trade, foreign investment, domestic investment and expectations) and “maintain security in the six areas” (the employment of residents, the basic livelihood of the people, operations of market entities, food and energy security, stable industrial and supply chains, and the normal functioning of primary-level governments), thereby providing strong support for pandemic containment and restoration of economic growth.
In terms of monetary policy, since the beginning of this year, the People’s Bank of China (PBC) has introduced sizable macro measures to cushion the adverse impacts, including lowering the required reserve ratio (RRR), providing central bank lending and central bank discounts, and launching innovative monetary policy tools that enable direct support for the real economy. Since the beginning of 2020, the PBC has made three RRR cuts, thereby decreasing the weighted average RRR by around 1 percentage point and releasing RMB1.75 trillion worth of liquidity. Since the year of 2018, the PBC has made a total of ten RRR cuts, lowering the weighted average RRR by about 5.5 percentage points and releasing RMB8.1 trillion worth of liquidity accumulatively.
In line with the features of pandemic containment as well as economic and social recovery and development at different stages, the monetary policy was rolled out in a step-by-step manner, with its own underlying logic. At the outset of the pandemic, the PBC launched RMB300 billion special central bank lending on January 31 to support banks in issuing loans at favorable rates to key enterprises providing medical supplies and daily necessities. With a 50 percent interest subsidy, the actual financing cost for enterprises was fairly low. Under the list-based management, the RMB300 billion worth of special central bank lending has been basically used up so far, offering targeted support to more than 7,600 key enterprises directly engaged in pandemic containment and strongly bolstering the task of securing the supply of medical supplies and daily necessities.
As the pandemic was initially curbed and the orderly resumption of work and production started, the PBC increased the quotas of central bank lending and central bank discounts by RMB500 billion on February 26, requiring commercial banks to extend loans at rates not higher than the 1-year loan prime rate (LPR, which was then 4.05 percent) plus 50 basis points. The actual interest rate averaged around 4.4 percent. By now, the RMB500 billion worth of central bank lending and central bank discounts have been basically used up, offering support to the resumption of work and production for nearly 600,000 enterprises.
As significant results were achieved in pandemic containment and life and work returned to normal at a faster pace, the PBC increased another RMB1 trillion of central bank lending and central bank discounts for inclusive finance on April 20, in a bid to support banks in ramping up credit supply to agro-related industries, micro and small businesses (MSBs) and private enterprises. The average financing cost is required to be below 5.5 percent and the quotas are expected to support over…
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