At the press briefing held by the State Council Information Office (SCIO) at 15:00 on July 13, 2022 (Wednesday), Ruan Jianhong, Director-General of the Statistics and Analysis Department of the People’s Bank of China (PBC) and PBC spokesperson, Zou Lan, Director-General of the Monetary Policy Department of the PBC, and Sun Tianqi, Director-General of the Financial Stability Bureau interpreted the financial statistics of H1 2022 and answered questions from journalists. The transcript is as follows.

Xing Huina, Deputy Director-General of the SCIO Press Bureau and spokesperson of the SCIO:

Dear journalists, good afternoon. Welcome to the press briefing of the SCIO. Today, we will introduce the financial statistics of H1 2022 and answer your questions. Ms. Ruan Jianhong, PBC spokesperson and Director-General of the Statistics and Analysis Department, Mr. Zou Lan, Director-General of the Monetary Policy Department of the PBC and Mr. Sun Tianqi, Director-General of the Financial Stability Bureau are present today.

Next, I will give the floor to Ms. Ruan Jianhong to brief on the statistics.

Ruan Jianhong, PBC spokesperson and Director-General of the Statistics and Analysis Department:

Good afternoon, friends from the press. Since the beginning of 2022, the PBC has earnestly implemented the arrangements of the Central Committee of the Communist Party of China (CPC) and the State Council. We acted proactively by strengthening implementation of the sound monetary policy and leveraging the dual roles of monetary policy tools in adjusting both the aggregate and the structure, to serve the real economy and stabilize overall economic growth. According to the financial statistics of H1 2022, liquidity remains adequate at a reasonable level; financial support for the real economy is strong; the credit structure is optimized; and the overall financing costs for businesses steadily decline. Overall, the financial sector has provided better and more efficient services for the real economy.

First of all, liquidity remains adequate at a reasonable level and financial support for the real economy has been beefed up. In the first half of 2022, the PBC lowered the required reserve ratio (RRR) by 0.25 percentage points and turned over a total of RMB900 billion in profits to the central government, to reasonably increase liquidity supply and enable financial institutions to step up credit support for the real economy. At end-June, broad money supply (M2) registered a year-on-year increase of 11.4 percent, 2.8 percentage points more than that of the same period last year. In H1 2022, the aggregate financing to the real economy (AFRE) registered RMB21 trillion, RMB3.2 trillion more than the increase in the same period last year. RMB loans rose by RMB13.68 trillion, RMB919.2 billion more than the increase in the same period last year.

Second, the credit structure is continuously improving. The PBC gave full play to the role of structural monetary policies in providing accurate guidance. Numerous structural monetary policy tools were rolled out to scale up support with more inclusive loans to micro and small businesses (MSBs), support micro, small and medium-sized enterprises (MSMEs) to stabilize employment, and continuously boost support for key areas and weak links in the national economy. At end-June, outstanding medium and long-term (MLT) loans to the manufacturing industry reported a year-on-year growth of 29.7 percent, surpassing the growth rate of all loans by 18.5 percentage points. Outstanding inclusive MSB loans rose by 23.8 percent year on year, 12.6 percentage points higher than the growth rate of all loans. A total of 52.39 million MSBs were granted credit to, up 36.8 percent year on year.

Third, the overall financing costs for businesses are steadily declining. In the first half of 2022, the PBC continuously improved the central bank policy rate system, strengthened regulation over deposit rates, and worked hard to stabilize banks’ liability costs. In June, the interest rate on new term deposits posted 2.5 percent, 16 basis points lower than that of the same period last year. Tapping into the potential of the loan prime rate (LPR) reform, we brought down the one-year and five-year LPRs by 10 basis points and 20 basis points respectively, which serves to cut the overall financing costs for businesses. In June, the interest rate on newly issued corporate loans came in at 4.16 percent, 34 basis points lower than that of the same period last year.

Next, the PBC will earnestly implement the CPC Central Committee’s guidelines of “containing the pandemic, stabilizing the economy, and maintaining sound development,” and uphold the underlying principle of pursuing progress while ensuring stability. The PBC will flexibly use a variety of monetary policy tools at the right time and give better play to the dual role of monetary policy tools in adjusting both the aggregate and the structure, so as to step up support for the real economy, ensure the economy performs within a reasonable range, and contribute to high-quality development, thereby standing ready for the convening of the 20th CPC National Congress. Thank you.

Xing Huina:

Thank you for your introduction, Director-General Ruan. Next, let’s welcome Mr. Zou Lan to share updates.

Zou Lan, Director-General of the Monetary Policy Department of the PBC:

First of all, I would like to introduce the basic information on policy-based and developmental financial instruments that you are interested in.

Since the beginning of 2022, an array of unexpected factors, including COVID-19 and the Russia-Ukraine conflict, have put downward pressure on China’s economy, and investment in infrastructure construction became an important approach to stabilize the macro economy. Last month, in line with the arrangements made at the State Council executive meeting, the PBC expanded the credit lines of development banks and policy banks, in a way to step up loan support for infrastructure construction projects that are valuable in the long run and feasible in the short run. Nevertheless, up to now, difficulties in securing capital for the projects have become one of the major challenges slowing down construction and loan issuance.

It was determined at the State Council executive meeting on June 29 that policy-based and developmental financial instruments will be adopted to support the development of major projects. In line with the decisions and arrangements of the CPC Central Committee and the State Council, and the work requirements of the Office of Financial Stability and Development Committee (FSDC) under the State Council, the PBC will help China Development Bank and the Agricultural Development Bank of China set up financial instruments with a combined scale of RMB300 billion. The instruments are designed to replenish the capital for major projects without exceeding half of the total investment, and to bridge financing for projects funded by special bonds if the funding are unavailable in the short run. For projects that need to be implemented sooner or later, obstacles arising out of the lack of funds could be removed in an accurate and swift manner with the support of financial instruments, so as to ensure such projects are kicked off as soon as possible and to secure tangible progress rapidly, which serves to stabilize the macro economy.

In line with the market-oriented principle, the banks use policy-based and developmental financial instruments to invest in compliance with the laws and regulations, make independent decisions, assume responsibility for profits and losses, bear risks on their own, and operate at a thin profit margin. They only make financial investments and exercise corresponding shareholders’ rights and do not participate in the construction and operation of projects. They will exit from these projects according to the market-oriented principle. The projects they fund should have remarkable social benefits as well as economic feasibility. The funds will mainly support three types of projects: the five major fields of infrastructure identified by the 11th meeting of the Central Financial and Economic Affairs Commission; major scientific and technological innovation; and other projects eligible for special local government bonds.

Policy-based and developmental financial instruments are measures for the current stage. With appropriate policy design, they are conducive to satisfying the policy requirements of securing funds for important projects without resorting to massive stimulus or excessive money supply. They help guide financial institutions to issue relevant MLT loans at low costs, improve the transmission mechanism of monetary policy, and boost the stability of credit growth. Accordingly, they can contribute to delivering the combined effects of boosting investment, employment, and consumption, and stabilizing the macro economy. That’s all my briefing.

Xing Huina:

Thank you, Director-General Zou. Now, we are ready to take your questions. Please let us know the news agency you work for before asking a question.

The Paper:

How was China’s macro leverage ratio in H1 2022? What’s your projection on the macro leverage ratio in H2 2022? Thank you.

Ruan Jianhong:

Thank you. I’ll answer your question. The PBC has been monitoring the changes in the macro leverage ratio. Since the fourth quarter of 2020, China has delivered remarkable progress in stabilizing the macro leverage ratio and stimulating growth. The macro leverage ratio has reported a net decrease for five consecutive quarters, which opens up valuable policy space for us to cope with various complex circumstances in the future. Compared with other regions of the world, since the COVID-19 outbreak, the increase in China’s macro leverage ratio has been significantly lower than that of other major economies, so we are able to achieve relatively fast economic recovery with fewer new debts. At end-2021, the leverage ratios of the US, Japan, and the Eurozone were 25.7, 39.5, and 21.4 percentage points higher respectively compared to end-2019. Meanwhile, China’s macro leverage ratio reported an increase of 16.5 percentage points during the same period, which was much lower than that of other major economies. In addition, the Chinese economy continues to outperform with overall inflation under control. In terms of policy effects, China has achieved an optimal mix of results featuring “high growth and low inflation” with only a moderate increase in the macro leverage ratio. This shows that macro policies have been powerful, proper, and effective.

China’s macro leverage ratio came in at 277.1 percent in Q1 2022, 4.6 percentage points higher than that of end-2021. Due to unexpected changes in international situations and a new round of COVID-19 outbreaks, China’s economy has been facing mounting downward pressure since the beginning of this year. The macro leverage ratio is the ratio of total debt to GDP, and economic slowdown would push the ratio up. To respond to the downward pressure and keep the macro economy stable, the PBC has rolled out a package of measures to stabilize economic growth. While the influence of these counter-cyclical adjustments on the growth of debt will become visible during the current period, the influence on output will not emerge until later on. Therefore, the macro leverage ratio is expected to rise temporarily, which not only objectively reflects external impacts but also underlines the role of counter-cyclical adjustment policies in stabilizing the macro economy.

It is worth noting that, despite markedly increased risks and challenges confronting China’s economic growth, the fundamentals of China’s economy remain unchanged. As China captures ongoing progress in COVID-19 containment at home and implements a package of policy measures to stabilize the economy at a faster pace, our economy has demonstrated an evident momentum in economic recovery, paving the way for us to keep the macro leverage ratio at a reasonable level in the future. Thank you.

China News Service:

I would like to ask what progress has been made in implementing policy-based and developmental financial instruments. How much capital is expected to be leveraged through these instruments? What arrangements will be made in the next stage? Thank you.

Zou Lan:

Thank you for your question. I will answer your question. Policy-based and developmental financial instruments are temporary measures intended to replenish funds for projects and to stabilize the macro economy. At present, with the close collaboration among competent authorities, local governments and enterprises, some projects have been included in the project library and some will be soon. Some projects are improving elements like land and energy consumption, and some are speeding up preliminary work, such as investment consultation and feasibility research. All of these endeavors will facilitate investment based on these financial instruments. China Development Bank and the Agricultural Development Bank of China have proactively reached out to a group of mature projects, and they will speed up the injection of funds in line with laws and regulations, so funds will be put in place and infrastructure construction be kicked off very soon.

A project cannot be launched without securing the capital in time. It is learned that the financial sources of many projects have already been confirmed, but some of them are yet to satisfy the requirement for infrastructure projects that 20 percent of the capital should be in place. Some projects are delayed either due to shortage of a small amount of money, or because they need more time for the funds to be ready. Projects can be started quickly, as long as financial instruments are put in place soon to satisfy the requirement for project capital. Now that financial instruments are not supposed to account for more than 50 percent of the capital in a project, they are estimated to account for no more than 10 percent of the total investment in every project. When funds are in place in full, the initial RMB800 billion of MLT policy-based and developmental credit sources will be made available promptly and social capital, such as loans issued by commercial banks, will soon follow up, thus jointly securing progress in project construction and stabilizing the macro economy.

Supporting policies regarding projects, funds and regulation are essential to the stable operation of policy-based and developmental financial instruments. Next, the PBC will work in concert with competent authorities to steadily advance the implementation of policy-based and developmental financial instruments as arranged by the CPC Central Committee and the State Council. We will primarily focus on the following three aspects.

To begin with, we will accelerate introducing and applying financial instruments. With the support of all parties concerned, two banks are busy rolling out financial instruments according to due procedures while formulating institutional norms for strengthening business process management and risk prevention and control, so as to enhance routine operation, post-investment management, and risk control.

Second, we will formulate lists of alternative projects. With the National Development and Reform Commission (NDRC) at the helm, relevant authorities, central government-owned enterprises and local governments are sorting out a large number of lists of alternative projects, which can produce sufficient social benefits and are economically feasible. In the meantime, the PBC will continue to advance project approval, prior-commencement preparations and project elements as soon as possible, in order to create more favorable conditions for the two banks to put in funds at a faster pace.

Lastly, we will advance project coordination in a solid manner. The two banks are going to strengthen coordination with alternative projects, which are to be categorized into different groups. Accordingly, funds will be made available in time for projects that are eligible to receive funding in line with market-based and law-based principles, so as to satisfy the reasonable needs of their construction. Meanwhile, for those which require further policy coordination before funding, the two banks will give effective feedback on relevant issues and follow up the matter, so that the projects can be kicked off once relevant requirements are met.

CNBC:

I have three questions. First, some economists are concerned about the domestic economic situation. Will China suffer economic stagnation in relative terms? Is the PBC concerned about this possibility? Are there any countermeasures in place? Second, a recent survey by the PBC reveals that personal inclination to save is at a relatively high level in two decades. What measures will the PBC adopt to stimulate consumption? Third, what is the latest progress regarding the development of e-CNY? Thank you.

Zou Lan:

I will answer the first and the third questions. The second one will be answered by Director-General Ruan.

From March to April, the unexpected shocks at home and abroad levied mounting downward pressure on China’s economy, so the income and balance sheet of some enterprises and residents were impaired. In this context, government authorities have stepped up support for the real economy. As a result, infrastructure investment grew by 6.7 percent year on year in the first five months, 0.5 percentage points higher than the growth rate of the overall investment. This endeavor not only mirrored the orientation of macro regulation but also marked an essential move to help China’s economy weather the storm.

It should be noted that the impacts of the COVID-19 are temporary. Since May, with COVID-19 gradually contained in China, the State Council has been implementing a package of policy measures to stabilize the economy as soon as possible. The implementation of fiscal policies, monetary policies and industrial policies has been enhanced. Major economic indicators are picking up significantly and the performance of the national economy is rebounding from the bottom. In terms of financial statistics, credit supply witnessed a remarkable increase. From January to June, the increase of corporate loans was RMB3 trillion more than that of the same period last year, and corporate financing maintained good momentum as a whole. The expansion of household loans shrank compared with the same period last year under the impacts of COVID-19, but signs of recovery have been emerging since the start of June. In the future, considering that the pandemic is expected to be generally contained, it is projected that the macro economy will rebound steadily, and the balance sheets of businesses and households are going to pick up progressively as well. Meanwhile, credit support is expected to remain strong.

Next, we will continue to boost the willingness of both enterprises and residents to pursue expansion.  It is of utmost importance to resume life and production more steadily with greater efficiency, maintain the momentum of economic recovery, and stabilize the revenue, expectations and confidence of the real economy. In so doing, we can further bolster the internal driving forces of economic growth and enhance economic vigor. Acting in line with the decisions and arrangements made by the CPC Central Committee and the State Council, the PBC will continue to implement a package of policy measures to stabilize the economy, beef up the implementation of the sound monetary policy, and foster a favorable monetary and financial environment to forge policy synergy and keep economic indicators within a reasonable range. To be more specific:

First, in terms of aggregates, the PBC will keep liquidity adequate at a reasonable level and step up credit support for the real economy. Meanwhile, the PBC will see to it that the growths of money supply and the aggregate financing to the real economy (AFRE) are generally in line with the nominal GDP growth and pay in the targeted annual profits to the central government in advance. Meanwhile, policy banks and development banks will be guided to implement the new credit line of RMB800 billion and introduce RMB300 billion of financial instruments in support of infrastructure construction.

Second, in terms of price, the PBC will unleash the benefits of the LPR reform and give full play to its guiding role, while making full use of the market-oriented adjustment mechanism of deposit rates. Financial institutions are guided to pass on the effects of deposit rate cuts to the pricing of loans and further bring down the actual lending rates.

Third, with respect to structure, the PBC will continue to put structural monetary policy tools to good use and lay greater emphasis on financial support for key fields. Since Q2 2022, the PBC has worked to cultivate new drivers of economic growth. We increased the funding support for inclusive MSB lending facility from one percent to two percent, made full use of the Carbon Emission Reduction Facility (CERF) and the special central bank lending facilities respectively for clean and efficient use of coal, for sci-tech innovation, for inclusive elderly care services, and for transport and logistics sectors, and provided sustained support for the development of agro-related businesses and MSBs.

As to the research and development of e-CNY, I will briefly update you on the latest progress. In H1 2022, following the requirements of the 14th Five-Year Plan, the PBC continued to work in concert with research institutes involved to steadily and prudently advance pilot programs of e-CNY with vigorous support from local Party committees and governments in pilot areas.

First of all, we have smoothly completed the e-CNY pilot program for the Olympic Games scenario. E-CNY, as a sci-tech symbol, delivered a brilliant performance during the 2022 Beijing Winter Olympics and Paralympics.

Second, we have steadily expanded the scope of pilot tests. Approved by the State Council, the e-CNY pilot program has been expanded from the original “10+1” pilot areas to 23 localities in 15 provinces and municipalities. Four cities or areas, namely Shenzhen, Suzhou, Xiong’an New Area, and Chengdu, have removed whitelist-related restrictions and the Industrial Bank Co., Ltd. was added to the designated operator list.

Third, we have been working to create distinctive application scenarios to expand the scope of e-CNY services. With stabilizing the economy as a general goal, we gave e-CNY an active role to play in protecting the people’s livelihood, stimulating consumption, expanding domestic demand, and stabilizing growth through some unique functions such as smart contracts.

Fourth, we have actively participated in international exchanges and cooperation to expand the “circle of friends” for e-CNY. As of May 31, 2022, approximately 264 million e-CNY transactions have been recorded in the pilot localities of the 15 provinces and municipalities, valued at around RMB83 billion. Up to 4.567 million stores have been offering payment services in e-CNY.

Next, the PBC will steadily expand the scope of pilot programs, work harder to develop scenarios and innovate application, study important issues, and advance international cooperation.

That’s my response to your first and third questions.

Ruan Jianhong:

I will answer the second question. The depositor survey by the PBC in Q2 showed that 58.3 percent of residents preferred “more savings deposits,” up 3.6 percentage points from the previous quarter, and 17.9 percent of residents preferred “making more investments,” down 3.7 percentage points from the previous quarter. The marginal increase in residents’ willingness to save and the decrease in their willingness to invest indicates their rising preferences for liquidity amid the COVID-19 resurgences in parts of China in Q2. At the same time, the residents’ risk preference dropped as volatility increased in the capital market. It is projected that the residents’ willingness to invest will recover gradually and their willingness to consume will pick up steadily with the COVID situation getting better.

Since the start of this year, both household and corporate deposits have witnessed a substantial increase with a slight drop in deposit rate. At end-June, household deposits reached RMB112.8 trillion, up RMB10.3 trillion from the beginning of 2022, which was RMB2.9 trillion more than the increase in the same period last year. Corporate deposits registered RMB74.9 trillion, up RMB5.3 trillion from the beginning of 2022, which was RMB3.1 trillion more than the increase in the same period last year. For one thing, derivative deposits increased as financial institutions intensified their support to the real economy by means of loans and bond investment. For another, deposits of the real sector increased as China implemented the policy of uncredited value added tax (VAT) refunds on a large scale in H1 2022.

In June, the interest rate on new deposits fell sharply to 2.5 percent, 16 basis points lower than the same period last year. The decline can scale up financial support to the real economy and sustain consumption growth.

The deposits of residents and enterprises are expected to grow steadily in the future. Meanwhile, the PBC will continue to advance the market-oriented interest rate reform, improve the market-oriented interest rate formation and transmission mechanism, optimize the central bank policy rate system, and push forward its efforts to lower the overall financing costs for businesses. Thank you.

People’s Daily:

We have seen that this year the PBC has launched a series of structural monetary policy tools to scale up financial support for key areas. What results have these tools yielded, and what arrangements will be made for the next step? Thank you.

Zou Lan:

I’ll take your question. Structural monetary policy tools are quite under the spotlight. Director-General Ruan and I have just briefly mentioned them. Now, I’d like to give you a more detailed introduction.

Since the beginning of this year, the PBC has launched three new structural monetary policy tools. The first one is the central bank lending for sci-tech innovation, which is designed to support new- and high-tech enterprises, small- and medium-sized enterprises (SMEs) with technical know-how, sophisticated operation, unique products, and innovative abilities, national model enterprises for technological innovation, as well as champion enterprises in particular areas of the manufacturing sector. The second one is a pilot program of special central bank lending for inclusive elderly care services, which supports qualified inclusive elderly care institutions so as to increase relevant service supplies. The third one is the special central bank lending for transport and logistics sectors, which mainly supports enterprises and individuals severely hit by the COVID, such as road freight transport enterprises and truck drivers. These tools, as well as the CERF and the central bank lending for the clean and efficient use of coal, which were launched in Q4 last year, are temporary tools. There are also long-term tools, such as the central bank lending and discounts for the agricultural sector, rural areas, farmers, and MSBs. With these diversified tools in place, our structural monetary policy toolkit is quite sophisticated.

In general, structural monetary policy tools are “focused, reasonable, moderate, and flexible.” Meanwhile, a working mechanism has been established, under which financial institutions issue loans independently and practice ledger management; the PBC offers reimbursements and controls the cap; and relevant authorities specify loan purposes and carry out random inspections. This framework helps encourage financial institutions to optimize the credit structure and prioritize inclusive finance, green development, and sci-tech innovation.

So far, a total of RMB182.7 billion funds have been released from the CERF, which supported RMB304.5 billion of bank loans for carbon emission reduction and helped reduce over 60 million tonnes of carbon emission. The central bank lending for the clean and efficient use of coal has supported RMB43.9 billion of low-cost bank loans to enterprises. The three new tools introduced this year will provide funds on a quarterly basis and the first application will be open in July 2022. The PBC is now making preparations for it.

In the next stage, the PBC will follow the strategic arrangements of the CPC Central Committee and the State Council, as well as the arrangements of the State Council executive meetings. We will continue to give full play to the role of structural monetary policy tools in adjusting both the structure and the aggregate, so as to extend stronger support to key areas and weak links of the national economy. Thank you.

Bloomberg News:

I have two questions. First, is there still room for further LPR cuts in H2 2022? Second, what is your view on the difficulty faced by depositors in withdrawing savings in Henan? Will risks arise across the financial and banking system considering the debt repayment capabilities of local governments? What are your comments on what has happened in Henan and other parts of China? Thank you.

Zou Lan:

I would like to answer the first question, and I’ll take the opportunity to give you an update on our recent work for the market-oriented interest rate reform and on the results we have achieved so far.

With the guidance of the PBC, the mechanism for market-oriented deposit rate adjustment was established this April to further push ahead with the marketization of deposit rates. Based on their own conditions and the bond market rates represented by the 10-year government bond yield as well as the loan market rates represented by the one-year LPR, members of the self-regulatory mechanism for interest rate pricing can set their deposit rates by themselves in a reasonable manner. Since the mechanism was established, banks have adjusted their deposit rates in line with changes in market rates. According to preliminary statistics, in June, new deposits in banks across the country recorded a weighted average interest rate of approximately 2.32 percent, down 0.12 percentage points from April before the adjustments were made. The establishment of the mechanism for market-oriented deposit rate adjustment has significantly improved the market-oriented pricing of deposit rates. It will help maintain a level playing field in the deposit market, stabilize banks’ liability costs, and bring down the actual lending rates so as to better support the development of the real economy.

Moreover, in accordance with the decisions and arrangements of the CPC Central Committee and the State Council, the PBC has established and improved the market-oriented interest rate formation and transmission mechanism in recent years, whereby market rates and central bank guidance influence the LPR, which then influences lending rates and deposit rates. In this way, monetary policy transmission has become much more efficient. Going forward, the PBC will continue to deepen the market-oriented interest rate reform, further tap into the LPR reform, leverage the role of the mechanism for market-oriented deposit rate adjustment, and give full play to the self-regulatory mechanism for interest rate pricing. By doing so, we aim to maintain order in market competition and further bring down the actual lending rates so that market entities can truly feel the reductions in overall financing costs. I think it’s necessary to answer your question by introducing the general progress of the market-oriented interest rate reform. So much for my answer.

Sun Tianqi, Director-General of PBC Financial Stability Bureau:

I’ll take the second question. Since the occurrence of risks associated with village and township banks in Henan, the PBC has worked actively with local governments and regulators to cope with it properly. We have guided the relevant PBC branches to perform their duties in maintaining regional financial stability, to monitor liquidity risks, and to provide emergency support. Overall, financial risks in China have been subsiding and are controllable as 99 percent of the assets in the banking sector are safe. As of end-2021, total assets of China’s banking institutions stood at RMB345 trillion, accounting for 90 percent of total assets of the financial sector. We often say that “financial stability depends on the stability of banks.” According to the central bank rating outcomes for Q4 2021, of the 4,398 banking institutions rated, 4,082 were within the safety limits, i.e., with Grades 1-7, making up 93 percent of the number of rated banking institutions and 99 percent in terms of asset size. Specifically, 24 large banks maintained their ratings of Grades 1-5, which stand for sound performance, accounting for 70 percent of the rated banking institutions in terms of asset size to be the stabilizer for the financial sector. There were 316 high-risk institutions, which were rated Grades 8-D. They accounted for 7 percent of the total number of rated banking institutions and only 1 percent in terms of asset size, which means the overwhelming majority of small and medium-sized banks are within safety limits, as shown by the central bank rating outcomes. In view of these figures, we hope there are media reports not only about the institutions with high risks but also about the over 4,000 with sound performance in order to give people a general picture of the situation of financial risks in an objective, all-round, and accurate manner. Thank you.

CCTV, China Media Group:

My question is about the growths in credit and AFRE. What trends can be seen from the changes reflected by the financial data since the beginning of this year? What are the structural features of the growths in credit and AFRE? What changes do you expect to see in credit and AFRE growths in the coming period of H2 2022? Thank you.

Ruan Jianhong:

Let me answer your question. As the H1 data shows, the performance of the financial sector is generally stable, financial aggregates have seen stable growth, and liquidity is adequate at a reasonable level, providing intensified support for the real economy. In H1, RMB loans increased by RMB13.68 trillion, RMB919.2 billion more than in the same period last year; and AFRE rose by RMB21 trillion, surpassing its growth in the same period last year by RMB3.2 trillion.

The structure of AFRE shows three prominent features. First, financial institutions have been stepping up credit support for the real economy. In H1, RMB loans issued by financial institutions to support the real economy increased by RMB13.58 trillion, RMB632.9 billion more than in the same period last year. Second, direct corporate financing grew stably. In H1, corporate bond financing recorded a net amount of RMB1.95 trillion, a year-on-year increase of RMB391.3 billion, while equity financing rose by RMB7.3 billion year on year to RMB502.8 billion. Third, the financial sector has actively supported fiscal policy as financing via the issuance of special local government bonds has increased significantly. In H1, net funding raised via government bonds rose by RMB2.2 trillion year on year to RMB4.65 trillion, of which a net RMB3.39 trillion was raised via special local government bonds, increasing by RMB2.23 trillion year on year.

Turning to the structure of loans, first, more support has been provided to enterprises and public institutions. In H1, RMB loans to enterprises and public institutions increased by RMB11.4 trillion, RMB3.03 trillion more than in the same period last year. Second, loans to the household sector saw slower growth, which reflects the impact of COVID-19 resurgence on household consumption. In H1, new loans issued to the household sector fell by RMB2.39 trillion year on year to RMB2.18 trillion. Specifically, consumer loans increased by RMB646.8 billion, RMB2.13 trillion less than in the same period last year, while business loans grew by RMB1.54 trillion, a contraction of RMB264.4 billion compared with a year earlier.

In the coming period, the PBC will make flexible use of a mix of monetary policy tools as needed to better leverage their roles in both aggregate and structural adjustments. Credit supply and AFRE are expected to maintain stable growth. Thank you.

China Business News:

Does the PBC have any projections for the economy in H2? What will monetary policy do in H2 to support stabilizing the economy? Are there sufficient tools to cope with possible changes beyond expectations? Are interest rate or RRR reductions on the table? Thank you.

Zou Lan:

I’ll take your questions. Since May, under the leadership of the CPC Central Committee and the State Council, the package of policies made by the State Council to stabilize the economy have been put in place at a faster pace as the COVID-19 situation in China is turning for the better on the whole. Fiscal, monetary, and industrial policy implementations are all gaining momentum. With these efforts, the national economy is picking up, as reflected by marginal improvements in major economic indicators. However, since the recovery is yet to be consolidated, economic performance in H2 is still faced with a lot of uncertainties and destabilizing factors. Much more needs to be done to stabilize the economy, while inflation is also a matter of concern.

Having stuck to a normal monetary policy in recent years, we have ample policy space and sufficient tools in reserve to cope with new challenges and changes that may arise beyond our expectations. In H2, the PBC will continue to pursue a sound monetary policy and accelerate steps to implement the policy measures already introduced. To be specific, we will ensure the previously launched structural monetary policy tools function effectively, and guide financial institutions to enhance their abilities to serve the real economy based on market principles and the rule of law. We will guide policy banks and development banks to make good use of the RMB800 billion newly increased credit lines and to launch facilities totaling RMB300 billion in support of infrastructure development. Furthermore, we will turn over this year’s surplus profits to the central budget ahead of schedule to help stabilize the macro economy, maintain the stability of employment, and secure people’s livelihood.

Now let’s turn to your question concerning interest rate and RRR cuts. Currently, the weighted average 7-day repo rate for depository financial institutions in the interbank market, commonly known as DR007, is around 1.6 percent, which is lower than the rates on open market operations (OMOs). Liquidity remains adequate at a reasonable level, or slightly above that level. From January to June this year, the interest rate on corporate loans went down by 0.31 percentage points to 4.32 percent, remaining stable with a slight decline and hitting the lowest point on record. Looking forward, following the arrangements made by the CPC Central Committee and the State Council, the PBC will take into consideration fundamentals such as economic growth and price changes and adopt a reasonable mix of monetary policy tools to keep liquidity adequate at a reasonable level. We will continue to encourage financial institutions to reduce financing costs for businesses, so as to create a favorable monetary and financial environment for consolidating economic recovery.

We have been paying close attention to the accelerated tightening of monetary policy by major economies. We have adopted forward-looking measures such as adjusting the RRR for foreign currency deposits and enhancing the macro-prudential management of cross-border capital flows, and thus cushioned the negative spill-over effects of external changes. The RMB exchange rate has moved in both directions and been at a reasonable level, with cross-border capital flows generally stable. Meanwhile, with a super large economy, China’s domestic monetary and financial situations mostly depend on domestic factors, so we will continue to implement monetary policy that focuses on domestic conditions, and try to strike a balance between internal and external equilibrium. Thank you.

China Daily:

In the first half of 2022, in what areas did the PBC intensify efforts to forestall and resolve risks? And what are the results? how is the progress of the risk resolution of high-risk financial institutions? What will be the priorities in this regard in H2 2022? Thanks.

Sun Tianqi:

Thank you for your questions. Under the strong leadership of the CPC Central Committee and the State Council, the PBC has worked with relevant authorities and local governments to forestall and defuse major financial risks. Under the principles of “maintaining overall stability, adopting coordinated approaches, taking differentiated measures, and defusing risks with precision,” we have yielded important achievements for now. We have managed to curb the excessively rapid growth of the macro leverage ratio and treated high-risk conglomerates and financial institutions with resolution. Issues disrupting the order of the financial market have been rectified across the board, and risks associated with shadow banking have been effectively mitigated. Meanwhile, we have significantly reinforced efforts to combat corruption and rectify irregularities in the financial sector, continuously scaled up services provided by the financial sector for the real economy, and effectively addressed various challenges including COVID-19. Overall, financial risks have been constrained and remained under control. 99 percent of assets in the banking sector are within the safety zone, so are the central bank ratings for most small and medium-sized banks.

Faced with the complex economic and financial situations at home and abroad, financial regulators must stay highly vigilant against various financial risks, brace ourselves for forestalling and defusing financial risks in advance, and defend the bottom line whereby no systemic risks will occur. First, we will render more effective micro-prudential regulation, and continuously strengthen the supervision of financial conducts, as well as consumer and investor protection. Second, differentiated measures will be taken to continuously defuse risks associated with financial institutions in focus. Third, we will ensure early detection, accurate identification, and decisive rectification of various illegal business conducts abhorred by the general public. Fourth, we will continue to replenish the capital of small and medium-sized banks through various means, including the issuance of local special government bonds, help them improve corporate governance and keep reducing the number of high-risk financial institutions nationwide. Our goal is to bring down the number to less than 200 by the end of the 14th Five-Year Plan period. Thank you.

21st Century Business Herald:

Currently, M2 has maintained a high growth rate. What’s the reason behind it, and how should we look at it? Thank you.

Ruan Jianhong:

I will take your questions. At end-June, outstanding M2 was RMB258.15 trillion, registering a year-on-year increase of 11.4 percent, up 0.3 percentage points from a month earlier and 2.8 percentage points from a year earlier. In terms of deposits, RMB deposits expanded by RMB18.82 trillion in H1 2022, RMB4.77 trillion more than the growth recorded in the same period last year.

The current substantial acceleration in RMB deposits and the fast growth of M2 are primarily attributed to the fact that the financial system has made great efforts to serve the real economy and thereby increased derivative money.

First, financial institutions supported early issuance of government bonds. In H1 2022, the bond investment of financial institutions grew by RMB4.68 trillion, RMB2.82 trillion more than the increase a year earlier. In particular, their investment in government bonds accelerated by RMB2.72 trillion.

Second, loans grew steadily. In H1 2022, loans increased by RMB13.68 trillion, RMB919.2 billion more than the growth in H1 2021.

Third, the PBC turned over RMB900 billion of profits to the central government to increase available financial resources. Through fiscal expenditure with the funds, M2 was pushed up by around 0.4 percentage points.

Additionally, as monetary and fiscal policies have worked in tandem this year, the accelerated pace of fiscal expenditure also contributed to the acceleration of M2 growth. In H1 2022, fiscal deposits expanded by RMB506.1 billion, RMB433.8 billion less than the growth a year earlier. Thank you.

Red Star News:

In H1 2022, what measures did the PBC take to help businesses out of difficulties and support MSMEs? What about their effects in stabilizing the economy? What policies are in consideration for the next stage? Thank you.

Zou Lan:

I will answer your questions. Since the beginning of this year, the PBC has followed the decisions and arrangements made by the CPC Central Committee and the State Council to adopt a proactive approach at an early stage. We give play to both aggregate and structural monetary policy tools, increase the injection of liquidity, and strengthen the use of structural monetary policy tools, thus boosting the capabilities of the financial sector to serve the real economy. Moreover, we have introduced a variety of policy measures to help stabilize economic growth and market entities and to secure employment.

First, we boosted policy support for enterprises in sectors hit by COVID-19. In concert with relevant departments, the PBC introduced and implemented 23 policy measures to strengthen financial services for COVID-19 containment and economic and social development, as well as initiatives to facilitate the recovery of struggling industries in the services sector such as catering, and to provide relief and assistance for MSMEs. We sought to help struggling businesses counter the impacts of the pandemic through deferred repayments on loan principal and interest and other policies.

Second, we bolstered the multi-layered collaboration between the government, banks, and enterprises. The PBC strengthened coordination with various authorities, including the NDRC and the Ministry of Industry and Information Technology (MIIT), to advance the sharing and use of credit information. We smooth the connection between banks and enterprises through off-line visits and online platforms’ information services. By now, we have established a directory containing 648,000 enterprises in sectors hit by COVID-19 as well as core enterprises in supply chains nationwide, with a total of RMB9.6 trillion of loans issued.

Third, we thoroughly implemented projects to enhance the capabilities of providing financial services for MSMEs. We issued the Notice of the People’s Bank of China on Promoting the Establishment of Long-Term Mechanisms for Boosting Financial Sector’s Confidence, Willingness, Capability, and Expertise in Lending to Micro and Small Businesses. The Notice further optimized resource allocation, and improved policy arrangements such as due diligence exemption, tolerance for non-performing loans, the pricing of internal fund transfers, and differentiated performance appraisal, so as to strengthen technology-empowerment and product innovation and enhance the willingness, ability, and sustainability of financial institutions to serve MSBs.

Fourth, we expanded diversified financing channels. We supported the issuance of special financial bonds for MSBs of which RMB215.5 billion in total were issued in H1 2022, thus effectively expanding the sources for extending credit for small and medium-sized banks. We promoted the use of CCRC Account Receivables Financing Service Platform, and gave play to the role of the platform of supply-chain bills. Thanks to these measures, at end-June, 365,000 entries of account receivables financing were processed, totaling RMB16.7 trillion.

All in all, we have improved the quality and efficiency of financial services for the real economy, with inclusive MSB loans continuously witnessing volume increase, coverage expansion and price reduction. Director-General Ruan briefed you on relevant statistics just now. In May this year, the weighted average rate on newly issued inclusive MSB loans was 5.19 percent, a month-on-month drop of 5 basis points.

Going forward, the PBC will work more closely with departments including the NDRC, the Ministry of Finance (MOF) and the MIIT to continue implementing the existing policies in a meticulous manner, and render stronger support to enterprises in COVID-stricken sectors, especially to MSBs, so as to jointly shore up market confidence and stabilize the macro economy. Thank you.

Xing Huina:

If there are no more questions, this concludes today’s press briefing. Thank you all. Goodbye.