On April 14, the People’s Bank of China (PBC) held a press briefing on Q1 2022 financial statistics. Ruan Jianhong, Director-General of the Statistics and Analysis Department and PBC spokesperson, Sun Guofeng, Director-General of the Monetary Policy Department, Li Bin, Director-General of the Macroprudential Policy Bureau, Zou Lan, Director-General of the Financial Market Department, and Sun Tianqi, Director-General of the Financial Stability Bureau attended the briefing and answered questions from the press. Luo Yanfeng, Deputy Director-General of the General Administration Department and PBC spokesperson, presided over the briefing. The transcript is as follows.

Luo Yanfeng: Good afternoon, friends from the press. Welcome to today’s briefing.

On April 11, the PBC released the financial statistics for Q1 2022. Since then, there has been much discussion in the market and the public have been expecting to hear from the central bank on its interpretation and on the financial situation reflected. As noted at the State Council executive meeting on April 6, we should appropriately and flexibly use a variety of monetary policy instruments and give full play to their dual roles adjusting both the aggregate and the structure, thus providing more robust support for the real economy. Similarly, the State Council executive meeting on April 13 pointed out that more measures should be taken to step up financial support for the real economy. Accordingly, the public are highly concerned about how the central bank will, in its next step, implement the decisions and arrangements made by the Central Committee of the Communist Party of China (CPC) and the State Council, and about how it will increase support for the real economy, prevent and defuse risks, and safeguard the overall stability of the macro economy. Therefore, at today’s briefing, we will interpret the financial statistics of the first quarter and respond to issues of concern.

Now let’s welcome Director-General Ruan for an interpretation.

Ruan Jianhong: 

Ruan Jianhong: Good afternoon, friends from the press. Since the beginning of this year, in line with the arrangements of the CPC Central Committee and the State Council, the PBC has prudently addressed new challenges to China’s economic development by pursuing the sound monetary policy that is flexible, targeted, reasonable, and appropriate and maintaining its continuity, stability and sustainability. Also, it has made great efforts to serve the real economy and increased support for key areas and weak links in the national economy.

On April 11, the PBC released the Financial Statistics Report (Q1 2022), showing that in the first quarter, liquidity was adequate at a reasonable level, financial aggregates grew stably, the credit structure improved, and the overall financing costs for businesses remained stable with a slight decline. All these have demonstrated the enhancing quality and efficiency of financial services for the real economy.

First, liquidity was adequate at a reasonable level and financial aggregates grew stably. In Q1, the PBC guided financial institutions to increase support for the real economy and kept liquidity adequate at a reasonable level. At end-March, broad money supply (M2) increased by 9.7 percent year on year, up 0.5 percentage points from a month earlier and 0.7 percentage points from a year earlier; and outstanding aggregate financing to the real economy (AFRE) increased by 10.6 percent year on year, up 0.4 percentage points from a month earlier and 0.3 percentage points from a year earlier. In Q1, RMB loans registered an increase of RMB8.34 trillion, RMB663.6 billion more than the increase in Q1 2021.

Second, the credit structure continued to improve, facilitating high-quality economic development. By giving full play to the role of structural monetary policies in providing targeted guidance, the PBC stepped up support for key areas and weak links in the national economy. At end-March, outstanding medium and long-term (MLT) loans to the manufacturing sector increased by 29.5 percent year on year, 18.1 percentage points higher than the growth rate of all loans; and outstanding inclusive loans to micro and small businesses (MSBs) went up by 24.6 percent year on year, 13.2 percentage points higher than the growth rate of all loans. A total of 50.39 million MSB accounts have been extended credit for inclusive MSB loans, up 42.9 percent year on year.

Third, the overall financing costs for businesses remained stable with a slight decline, and the operating costs for enterprises went down. In Q1, the PBC continued to improve the central bank policy rate system, optimize the regulation of deposit rates, and unleash the potential of the loan prime rate (LPR) reform, guiding the one-year LPR to fall by 10 basis points and the five-year LPR by 5 basis points, thereby reducing the overall financing costs for businesses. In March 2022, the interest rate on newly issued corporate loans registered 4.37 percent, down 8 basis points from December 2021.

At present, China is experiencing more frequent COVID-19 cases, and the external environment is becoming more complex amid uncertainties. Nevertheless, our economy is highly resilient, and the fundamentals underpinning long-term growth will remain unchanged.

In the next step, the PBC will earnestly implement the arrangements of the CPC Central Committee and the State Council. We will use monetary policy instruments flexibly at the appropriate time, give better play to their dual roles in adjusting both the aggregate and the structure, and therefore step up support for the real economy.

Thank you.

Luo Yanfeng: Thank you, Ms. Ruan. Now it’s time for questions.

China Securities Journal: As we have observed, AFRE in Q1 has significantly exceeded market expectations. How does the central bank take this? What are the highlights of the AFRE structure? What are your expectations for future growth?

Ruan Jianhong:

Ruan Jianhong: In Q1, the AFRE (flow) registered RMB12.06 trillion, up RMB1.77 trillion from Q1 2021, primarily because the financial system had earnestly implemented the arrangements of the CPC Central Committee and the State Council, prudently addressed new challenges to our economic development, and stepped up financial support for the real economy.

By structure, the AFRE (flow) in Q1 mainly showed the following characteristics:

First, financial institutions increased credit support for the real economy. In Q1, RMB loans issued by financial institutions to the real economy registered an increase of RMB8.34 trillion, RMB452.8 billion more than the increase in Q1 2021.

Second, direct corporate financing maintained a rapid growth. In Q1, net financing of corporate bonds recorded RMB1.31 trillion, up RMB405.0 billion year on year. Domestic equity financing amounted to RMB298.2 billion, up RMB51.5 billion year on year.

Third, government bond financing registered a larger year-on-year growth. In Q1, net financing of government bonds totaled RMB1.58 trillion, up RMB923.8 billion year on year; net financing of local government special bonds registered RMB1.33 trillion, up RMB1.09 trillion year on year, primarily because the local government special bonds were issued in advance to maintain stable economic growth.

Fourth, entrusted loans and trust loans together recorded a significantly smaller decrease. In Q1, the decrease posted RMB122.9 billion, RMB238.9 billion less than that in Q1 2021.

In addition, I would like to brief you on bankers’ acceptances.

In Q1, bill financing and undiscounted bankers’ acceptances together recorded an increase of RMB881.8 billion, RMB1.04 trillion more than the growth in Q1 2021 and posting a big increase. Bankers’ acceptances are conducive to the normal business activities of both drawers and payees. According to the transaction-by-transaction data on bankers’ acceptances collected in the National Basic Financial Database, in the first two months of 2022, banking institutions supported over 100,000 drawers and 500,000 payees by issuing bankers’ acceptances. By distribution, drawers and payees primarily included privately held enterprises, businesses in the manufacturing sector, and wholesale and retail businesses, and drawers were mainly distributed in Jiangsu, Zhejiang, Shandong, and Guangdong.

Going forward, the PBC will flexibly utilize a variety of monetary policy instruments to serve the real economy, and it is expected that the AFRE will grow steadily. Thank you.

Reuters: Recently, some institutions revised down their expectations for China’s economic growth. What is the PBC’s view on the current economic downward pressure? What are the implications for monetary policies in the upcoming period? What policies will be adopted to address the situation? Under multiple pressures such as the COVID-19 rebound, external geopolitical conflicts and the real estate market downturn, how will monetary policies produce effects on stabilizing growth and effectively support the real economy?

Sun Guofeng: 

Sun Guofeng: Since the beginning of this year, following the decisions and arrangements made by the CPC Central Committee and the State Council, as well as the guiding principles of the Central Economic Work Conference and the requirements of the Report on the Work of the Government, the PBC has put stability in the first place, pursued progress while maintaining stability, kept the sound monetary policy flexible and appropriate, implemented relevant policies in a forward-looking manner, so as to step up the financial sector’s support for the real economy.

In Q1, RMB loans increased by RMB8.3 trillion, surpassing that in the same period of the previous year by RMB663.6 billion. At end-March, M2 and AFRE increased by 9.7 percent and 10.6 percent respectively, up 0.7 and 0.3 percentage points respectively from end-2021. The PBC continued to encourage financial institutions to enhance support for key areas and weak links, such as sci-tech innovation, green development, and MSBs. At end-March, outstanding inclusive MSB loans registered RMB20.8 trillion, up 24.6 percent year on year. A total of 50.39 million MSB entities gained access to inclusive financing, reporting a year-on-year increase of 42.9 percent. MLT loans to the manufacturing sector increased by 29.5 percent year on year. According to preliminary statistics, in Q1 2022, the interest rate on corporate loans dropped to around 4.4 percent, down 0.21 percentage points from 2021.

At present, new downward pressure is mounting on our economy. In view of the situation, we should shore up confidence and attach great importance to tackling new challenges. In the next step, the PBC will continue to implement the decisions and arrangements made by the CPC Central Committee and the State Council, the guiding principles of the Central Economic Work Conference, and measures proposed in the Report on the Work of the Government. In line with the requirements of the State Council executive meetings, the PBC will employ when appropriate monetary policy tools such as required reserve ratio (RRR) cuts, and further strengthen the financial sector’s support for the real economy, especially for industries, micro, small and medium-sized enterprises (MSMEs) and self-employed businesses severely affected by the COVID-19. The financial system will reasonably forgo its profits in favor of the real economy and reduce the overall financing costs. In terms of aggregates, we will keep liquidity adequate at a reasonable level and maintain a stable growth of credit aggregates. In terms of prices, we will leverage the progress achieved in the LPR reform and reduce the overall financing costs for businesses. In terms of structure, we will promptly provide the special central bank lending for sci-tech innovation and inclusive elderly care services, make good use of the support instruments for inclusive MSB loans, increase central bank lending for rural development and MSBs, and effectively implement the Carbon Emission Reduction Facility (CERF) and the special central bank lending for the clean and efficient use of coal. Thank you.

Economic Information Daily: Recently, the central bank approved the licenses of two financial holding companies (FHCs). What are the future plans and arrangements on issuing FHC licenses? What factors will be primarily taken into consideration in the issuance?

Li Bin:

Li Bin: Thank you for following our work on FHCs. Since the Trial Measures on Regulation of Financial Holding Companies was implemented, the PBC has adhered to the market-oriented and law-based principles and the Two Unwavering Commitments in the access management and regulation of FHCs in line with laws and regulations. Recently, China CITIC Financial Holdings and Beijing Financial Holdings Group have been approved for establishment. Currently, the PBC is reviewing another three applications according to procedures and will prudently advance FHC establishment by eligible companies in an orderly manner.

The CPC Central Committee and the State Council have made multiple arrangements on regulating comprehensive financial operation and industry-finance integration, exercising coordinated supervision over FHCs, and incorporating all types of financial businesses into regulation. Therefore, promoting the establishment of FHCs by non-financial enterprises in line with the law and incorporating FHCs into the macro-prudential management framework became an important move of the PBC to implement the arrangements made by the CPC Central Committee and the State Council as well as to shore up the weak links in the financial regulation. The regulation of FHCs is aimed at grasping a holistic picture of their overall business performance on an ongoing basis, forestalling financial risks, promoting sound and sustainable development, and enhancing their capacity to serve the real economy.

Keeping these goals in mind, the PBC has primarily taken into account the following factors in the access management of FHCs. First, a non-financial enterprise planning to establish an FHC should have de facto control of at least two types of financial institutions, whose types and asset sizes conform to prescribed standards. Second, shareholders of a prospective FHC should meet qualification criteria, and major shareholders should have well-focused core business with solid capital, well-regulated operation, and authentic and legitimate investment funds. Third, a prospective FHC should have a straightforward, clear, and penetrable equity structure that could easily identify actual controllers and ultimate beneficiaries. Fourth, a prospective FHC should have a sound organizational structure and effective risk management system to ensure it has sound corporate governance and risk isolation mechanism and adequate capital after its establishment.

The PBC will continue to encourage eligible companies to establish FHCs to take the opportunity to fully understand their financial situation, effectively separate financial businesses from industrial ones, improve corporate governance and risk management, and centralize equity management in financial businesses. In this way, we will be able to enhance the effectiveness of holistic supervision over subsequent FHCs, prompt FHCs to operate in accordance with laws and regulations, prevent cross-institution, cross-market, and cross-industry risk contagion, maintain the stability of the financial system, improve its capacity to serve the real economy and high-quality development, and help the economy perform within a reasonable range. Thank you.

Asahi Shimbun: The extension of Shanghai’s lockdown may bring difficulties to MSMEs. What policies will the PBC adopt to support them in the future?

Zou Lan:

Zou Lan: Since the beginning of this year, with sporadic COVID-19 cases reported across China, the service industry, among others, and MSBs have been hard hit and are faced with difficulties in their normal business operations. Under such circumstances, the PBC has earnestly implemented the decisions and arrangements of the CPC Central Committee and the State Council and rolled out targeted policies in advance. Under our guidance, financial institutions have been increasing credit supply, extending all-out support to relieve severely affected regions, industries, and businesses of their difficulties.

In February, the National Development and Reform Commission (NDRC), together with other ministries, released Several Policies on Promoting the Recovery and Development of Service Industries in Difficulty. Through inclusive financial support and industry-specific support measures, assistance is weighted more heavily toward industries which have been experiencing particular difficulties, such as catering, retail, tourism, transportation (including highway, waterway, and railway), and civil aviation. At end-March, outstanding inclusive MSB loans recorded RMB20.8 trillion, increasing 24.6 percent year on year and maintaining a high growth rate.

Going forward, the PBC will continue to ensure stability on six fronts, namely, employment, the financial sector, foreign trade, foreign investment, domestic investment, and expectations, and maintain security in six key areas, namely, employment, the people’s basic livelihood, the operations of market entities, food and energy, stable industrial and supply chains, as well as the normal functioning of primary-level governments. We will extend all-out support to alleviate industries and MSBs from their difficulties and safeguard the overall stability of the macro economy.

First, we will fully implement financial relief policies, and guide financial institutions to increase credit supply to regions and industries hard hit by the COVID-19, to innovate financial products and services, and to meet reasonable financing needs. Financial institutions should avoid recklessly limiting, withdrawing or cutting loans. Instead, they should render support to industries and businesses in difficulty and help them pull through.

Second, we will continue to utilize the instrument supporting inclusive MSB loans, central bank lending and central bank discount to strengthen positive incentives. In accordance with market-based principles, financial institutions should reasonably arrange loan extensions or renewals, tap into new financing demands, increase the issuance of inclusive MSB loans, and raise the proportion of unsecured loans and first-time loans in inclusive MSB loans.

Third, we will further enhance our capacity to provide financial services for MSMEs, urge commercial banks to consistently optimize internal resource allocation and policy arrangements, improve performance assessment, due diligence, and liability exemption, intensify fintech empowerment, and speed up the building of a long-term mechanism whereby banks will have the confidence, willingness, ability, and professionalism to issue loans.

Lastly, we will enhance collaboration with authorities such as the Ministry of Finance, NDRC, the Ministry of Industry and Information Technology (MIIT), as well as local governments, to promote the sharing and application of credit information, and boost multi-level financing cooperation among governments, banks and enterprises in multiple areas and varied forms. We will leverage guarantee, credit enhancement and risk compensation to expand the coverage and improve the convenience of MSB financing.

China Business News: Recently, the PBC released its rating of financial institutions. What’s your view on the soundness of China’s financial institutions at the moment? What considerations and moves will the PBC have in the next stage for the sound development of financial institutions?

Sun Tianqi: 

Sun Tianqi: Thank you for your questions. In recent years, under the strong leadership of the CPC Central Committee and the State Council, the PBC, in collaboration with relevant authorities and local governments, has fought the tough battle of forestalling and defusing major financial risks and made significant progress at the current stage. The macro leverage ratio has been basically stabilized. The problems with high-risk groups and financial institutions have been resolved in an orderly manner. Shadow banking risks have significantly declined. Credit risks in major fields have been properly resolved. Problems disrupting financial orders have been rectified in an all-round way, and actions to combat corruption and misconducts in the financial sector have been advanced. At present, China’s financial system is stable on the whole with risks contained and the capability of serving the real economy enhanced remarkably.

At end-2021, the total assets of China’s financial sector registered RMB381 trillion, over 90 percent of which came from the banking sector. Therefore, the stability of the banking sector is essential for financial stability. According to the central bank rating of the banking sector in Q4 2021, 4,082 out of the 4,398 rated institutions fell within the safe boundary, whose assets represent 99 percent of the total amount. Among them, 24 large banks, holding around 70 percent of the total assets, have maintained favorable ratings, and served as the cornerstone underpinning financial stability. The number of high-risk institutions nationwide, after falling for six consecutive quarters, decreased by half from its peak to 316. Their assets accounted for only one percent of the total. So now financial risk resolution has become normalized.

Finance mirrors the economy. As the market economy is cyclical, high-risk institutions will inevitably emerge amid the fluctuations of the economic and financial cycles. Therefore, rather than getting blindly optimistic in upturns or overly pessimistic in downturns, we should reinforce inter-temporal management at both the macro and micro levels and take preemptive measures before the financial risk curve takes a turn.

Going forward, the PBC, together with relevant authorities, will earnestly implement the decisions and arrangements made by the CPC Central Committee and the State Council, prioritize stability while pursuing progress, and constantly improve the effectiveness of financial regulation. We will improve the corporate governance system of financial institutions, which is supposed to feature effective checks and balances. For small and medium-sized financial institutions, we will establish a multi-channel and market-based capital replenishment mechanism and guide them to serve the local communities, MSBs, agriculture, rural areas, rural people, and urban residents based on their market positioning. Also, we will continue to promote the sound operations of financial institutions to better support high-quality economic development. Local governments should step up their efforts to improve the credit environment, foster a sound financial ecosystem, and create favorable conditions for the virtuous cycle of regional economic and financial development.

In terms of risk resolution, for newly emerged high-risk institutions, we will establish an early correction and rectification deadline mechanism that has hard constraints, and connect early correction with the central bank rating and the regulatory rating. With early identification, warning, detection, and resolution of risks, we will ensure a timely correction at the early stage. As there are hard constraints on rectification, regulatory authorities will step in if high-risk institutions fail to make a correction before the deadline. In this way, there will be no accumulation of high-risk institutions. Likewise, for illegal financial activities detested by the public, we will exercise early and accurate identification, and act swiftly and forcefully in resolution. For institutions with favorable ratings, we will establish a scientific monitoring and early warning system capable of detecting abnormal business indicators at an early stage and sending out warning signals, so that potential risks will not evolve into substantial risks. In 2021, financial stability authorities identified 274 banks with abnormal indicators and potential problems. Thanks to timely actions, 189 banks defused their potential risks in an orderly manner, and around half of them completed their correction within three months. For existing high-risk institutions, we will follow relevant policies and arrangements to ensure that financial institutions and their shareholders assume primary responsibilities, authorities undertake regulatory responsibilities, and local governments are accountable for local risk resolution, stability maintenance and conflict resolution. In this way, we will establish fiscal and financial risk resolution mechanisms under the responsibility of major local government officials as required by the CPC Central Committee and effectively resolve risks and reduce the number of high-risk institutions.

CCTV Business Channel, China Media Group: A recent executive meeting of the State Council proposed that special central bank lending facilities should be launched for sci-tech innovation and inclusive elderly care services. Could you please introduce the background and arrangements of these facilities, such as the interest rates, eligible banks, key projects, and beneficial enterprises and individuals? When will they be implemented? And also which key areas will be supported by the central bank lending in the future?

Sun Guofeng:

Sun Guofeng: To support financing for key areas and weak links and more effectively shore up the real economy, the PBC is, in accordance with the decisions and arrangements of the CPC Central Committee and the State Council as well as the requirements of the State Council executive meetings, introducing two special central bank lending facilities for sci-tech innovation and inclusive elderly care services based on the principle of targeted liquidity provision, positive incentives and marketization.

First, a few words about the central bank lending for sci-tech innovation. Following the decisions and arrangements made by the CPC Central Committee and the State Council on the strategy of strengthening the country with science and technology, the PBC has introduced this facility to encourage financial institutions to step up support for sci-tech innovation enterprises, including high-tech enterprises, small and medium-sized enterprises (SMEs) which are specialized, skilled, unique and innovation-driven, national technological innovation demonstration enterprises, and single-product champion enterprises in the manufacturing sector. In practice, the definition of eligible enterprises should be subject to the criteria of the Ministry of Science and Technology (MOST) and the MIIT. Financial institutions will have the freedom to choose from those eligible enterprises and provide them with financing services. Twenty-one nationwide financial institutions have been recognized as eligible banks for the facility, including China Development Bank, policy banks, state-owned commercial banks, the Postal Savings Bank of China, and joint-stock commercial banks, etc. A total of RMB200 billion loans will be accessible to eligible enterprises at an interest rate of 1.75 percent under a reimbursement mechanism. The PBC will, on a quarterly basis, reimburse the financial institutions for 60 percent of the principals on those loans with a maturity of at least six months.

Now let’s turn to the central bank lending for inclusive elderly care services. In fast-aging China, the general public has limited access to elderly care services except for those following policy- and market-oriented models. To implement the decisions and arrangements made by the CPC Central Committee and the State Council on proactively addressing the problems related to the aging population, and to speed up the improvement of the elderly care service system, the PBC has introduced this facility to encourage financial institutions to provide inclusive elderly care institutions with low-cost loans, aiming to reduce their financing costs and thus increase the supply of inclusive elderly care services for the general public. At the initial stage, a pilot program will be launched in Zhejiang, Jiangsu, Henan, Hebei, and Jiangxi provinces, with a central bank lending quota of RMB40 billion and at an interest rate of 1.75 percent. Seven large nationwide banks, namely, China Development Bank, the Export-Import Bank of China, Industrial and Commercial Bank of China, the Agricultural Bank of China, Bank of China, China Construction Bank, and Bank of Communications, will participate in the pilot program. These financial institutions will, in line with market-based principles, issue loans to programs of eligible inclusive elderly care institutions at a preferential rate close to the LPR for the same maturities. This facility also operates under a reimbursement mechanism, whereby the PBC will, on a quarterly basis, reimburse the financial institutions in full for the principals on eligible loans.

At present, the PBC is working with relevant authorities for the implementation of the two central bank lending facilities in due course. It will give full play to both aggregate and structural monetary policy instruments to enhance support for the real economy. Thank you.

Hong Kong Economic Herald: Would you explain why the amount of new loans hit a new high in Q1? What are the structural features of the loans? What are your expectations for credit growth in the future? Thank you.

Ruan Jianhong: In Q1, new RMB loans increased by RMB663.6 billion year on year to hit a record high of RMB8.34 trillion. First, this was because the financial sector firmly implemented the arrangements made by the CPC Central Committee and the State Council. Preemptive measures were taken to expand credit so that the supply of credit picked up pace. Second, as the LPR reform continued to show effect, lending rates were stable and fell slightly, pushing up loan growth. In March, corporate loans were issued at an interest rate of 4.37 percent, down 8 basis points from last December.

At end-March, RMB and foreign currency MLT loans of all sectors recorded an outstanding amount of RMB71.69 trillion, rising by 11.9 percent year on year, 0.9 percentage points higher than the growth rate of RMB and foreign currency loans as a whole in the same period. In Q1, MLT loans of all sectors grew by RMB3.59 trillion, RMB421.5 billion less than the increase in the same period last year.

The structural features are as follows.

First, MLT loans to the manufacturing sector maintained rapid growth. At end-March, the outstanding amount of MLT loans to the manufacturing sector registered a growth rate of 29.5 percent. Specifically, outstanding MLT loans to the high-tech manufacturing sector rose by 31.9 percent.

Second, MLT industrial loans grew fast. At end-March, MLT industrial loans saw a growth of 20.7 percent, markedly higher than that of MLT loans of all sectors.

Third, MLT loans to the infrastructure sector grew at a slower pace. At end-March, MLT loans to the infrastructure sector recorded a growth of 13.2 percent, down 0.5 percentage points from a month earlier.

Fourth, MLT loans to export-related industries saw a fast growth. At end-March, the growth rate of MLT loans to export-related industries posted 31.8 percent, up 0.6 percentage points from a month earlier.

The credit supply is expected to maintain stable growth in the future to support economic recovery. The PBC will continue to smooth the transmission mechanism of monetary policy. By using a mix of monetary policy tools, we will guide financial institutions to ramp up support for the real economy so as to make the growth of credit aggregates more stable. Thank you.

China Daily: Would you say something about the growth of property loans in Q1? What are the major contributing factors? Many cities have lowered the interest rates on home loans recently, with some having adjusted the down payment ratios as well. Could you give us more detail?

Zou Lan: 

Zou Lan: Property loans mainly consist of personal home loans and property development loans. The former is directly associated with property trading. For instance, long-term observations have shown that the ratio of home loan issuances to new home sales always fluctuates within a range of 38 percent to 42 percent. Recently, as COVID-19 outbreaks have reduced some people’s income and affected property construction and promotion, home sales have declined, with the issuances of personal home loans falling slightly. In addition, as the outstanding amount of personal home loans has been increasing, monthly repayment figures are also on the rise. At end-March, personal home loans outstanding totaled RMB38.8 trillion, up 8.9 percent year on year. According to our observations, although the ratio of home loan issuances to new home sales are at a historically high level, the year-on-year growth rate of the outstanding amount has fallen by 2.3 percentage points from end-2021.

With regard to property development loans, as the Evergrande risks unfolded, triggering reaction from financial institutions, the PBC guided commercial banks to focus more on the solvency of the project itself so as to maintain the stable issuance of property development loans and satisfy the reasonable financing needs of property projects. In Q1 2022, the average monthly increase in the national total of property development loans surpassed that in Q4 2021 by approximately RMB150 billion; and the outstanding amount of property development loans was relatively high in view of the scale of new homes under construction in the same period.

Because China’s property market has distinct regional features, city-specific approaches have been adopted in the setting of personal home mortgage rates and down payment ratios, with the pricing mechanism based on three tiers, namely, the national tier, the city tier, and the bank tier. Take the interest rate floor for instance. According to the national policy that must be abided by throughout the country, the mortgage rate for a first-time homebuyer shall not be lower than the LPR for the corresponding maturity while the mortgage rate for a second-time homebuyer shall be the LPR for the corresponding maturity plus at least 60 basis points. The provincial branches of the PBC offer guidance to the provincial-level self-regulatory mechanisms for market interest rate pricing, who set for each city in their respective jurisdiction the minimum of basis points to be added to the LPR in compliance with the national policy. That is the floor rate that must be observed locally. In practice, most cities have adopted the national floor for mortgage rates without adding extra basis points to the LPR. Then based on the city’s policy, banks can set their rules for interest rate pricing in light of their business operation, risk profile of customers, and credit conditions, and determine as appropriate the number of basis points to be added in making a loan. This is an entirely market-based business decision making process.

Recent reductions in mortgage rates mainly took place at the bank level. Since March this year, with the weakening of market demand, banks in more than 100 cities across the country have lowered their mortgage rates by 20 to 60 basis points on average in light of market changes and their own conditions. While abiding by the national policy, some provincial-level self-regulatory mechanisms for market interest rate pricing also lowered the local floors for down payment ratios and mortgage rates based on local circumstances in order to meet the management requirements of local governments. These market-oriented adjustments, which have been made in a differentiated manner by municipal governments or banks according to market conditions and their business strategies, reflect the adaptation to the distinct regional features of the property market.

Going forward, the PBC will adhere to the principle that houses are for living in, not for speculation. Committed to stabilizing land prices, housing prices, and expectations, we will take city-specific approaches and work with local governments to fulfill our responsibilities, thereby better satisfying the reasonable housing needs of homebuyers.

Bloomberg News: How will you keep the RMB exchange rate stable with the ongoing appreciation of the US dollar? Besides, as affected by the external environment, it appears that capital is flowing out of China. Will the RMB exchange rate experience any drastic adjustments in the future? How will the PBC address such potential fluctuations in RMB exchange rate? Will you take countermeasures if the exchange rate remains strong underpinned by trade surplus later on? How will you mitigate the impact of exchange rate fluctuations on export-oriented enterprises? Thank you.

Sun Guofeng: 

Sun Guofeng: Since the beginning of 2022, the RMB exchange rate has displayed two-way fluctuations and the current RMB exchange rate against the US dollar is basically on a par with that at end-2021. China remains committed to a managed floating exchange rate regime based on market supply and demand and takes into account a basket of currencies, with the market playing a decisive role in the exchange rate formation. In general, the RMB exchange rate has become more flexible and is basically stable at an adaptive and equilibrium level.

The PBC and the State Administration of Foreign Exchange (SAFE) have made great efforts to help foreign-trade enterprises cope with the fluctuations of exchange rates. First, we have guided financial institutions to provide services on exchange rate risk management for import and export enterprises based on their real demands under the principle of risk neutrality, and we asked the Foreign Exchange Market Self-Regulatory Framework (SRF) to conduct prudent risk neutrality assessments for banks, so as to lower the hedging cost of exchange rate risk for micro and small foreign-trade enterprises, provided that the risks are under control. Second, we have strengthened collaboration with relevant departments to enable concerted efforts regarding policy support, publicity, and training. Specifically, we have guided the China Foreign Exchange Trade System (CFETS) to reduce and waive service charges for foreign exchange transactions collected by banks from MSMEs to substantially cut their foreign exchange hedging cost. Third, branches of the PBC and the SAFE and banks have launched targeted publicity, training, and onsite guidance, to enable enterprises to better manage exchange rate risks.

These measures have yielded remarkable results. In 2021, we witnessed a 59 percent year-on-year increase in the use of forward foreign exchange sales, foreign exchange options, and other foreign exchange hedging products for exchange rate risk management by enterprises, 36 percentage points higher than the growth rate of foreign exchange purchase and sales during the same period. Meanwhile, the hedge ratio of enterprises grew by 4.6 percentage points year on year to 21.7 percent.

Next, the PBC will properly implement the sound monetary policy with appropriate pace and intensity based on the dynamics of domestic economic developments, make the RMB exchange rate more flexible, leverage the role of exchange rate as an automatic stabilizer for the macro economy and the balance of payments, ensure the RMB exchange rate is basically stable at an adaptive and equilibrium level, and promote the balance between internal and external equilibria. At the same time, we will closely monitor the international macroeconomic and financial situations to properly cope with the impact associated with the changes in the external environment. Thank you.

Red Star News: Could you please elaborate on the performance of RMB cross-border trade settlement in the first quarter? What measures does the PBC plan to take to lift the share of RMB cross-border trade settlement, so as to further tap into the positive role of cross-border RMB business in serving the real economy and facilitating trade and investment?

Li Bin: In Q1 2022, the RMB payment and receipt in cross-border trade totaled RMB1.89 trillion, reporting a year-on-year increase of 22 percent, which is 14 percentage points higher that the growth rate of the entire cross-border RMB business of the same period, indicating that cross-border RMB business is playing a more important role in serving the real economy. In particular, the processing trade which imports raw materials and then exports finished products, and cross-border e-commerce business emerged as two new drivers for the increase in RMB cross-border settlement conducted for trade in goods, contributing RMB325.9 billion and RMB154.3 billion to the total settlement respectively in the first quarter, up 51 percent and 37 percent year on year respectively.

For foreign-trade enterprises based in China, the use of RMB for settlement could eliminate the risk of currency mismatch in cross-border trade activities and reduce the cost of foreign exchanges, so the enterprises have demonstrated a stronger interest in the use of RMB.

In recent years, to facilitate the building of a new development paradigm and the development of trade and investment, the PBC has fully implemented the arrangements made by the CPC Central Committee and the State Council, adhered to the underlying principle of pursuing progress while ensuring stability, and encouraged the cross-border use of RMB in line with market demand, thus progressively promoting the use of RMB by overseas entities. In Q1 2022, the amount of RMB cross-border payment and receipt by banks on behalf of their customers totaled RMB9.7 trillion, up 8 percent year on year. At end-February 2022, the RMB financial assets held by overseas entities in China, such as shares, bonds, loans, and deposits, were estimated to be RMB10.5 trillion, up 9 percent year on year. Among them, deposits in main offshore RMB markets exceeded RMB1.5 trillion.

In the next stage, the PBC will continue to rely on the market as the driving force and let enterprises make their own choices, improve the policy support system and infrastructure arrangements on the international use of RMB, and steadily advance the two-way opening-up of China’s financial market. Meanwhile, the PBC will support the sound development of offshore RMB markets, and roll out cross-border RMB policies in favor of new forms of foreign trade. We will look into ways to scale up pilot programs of integrated RMB and foreign currency cross-border cash pooling, and actively encourage financial institutions to provide high-quality and convenient RMB cross-border financial services for the market. In so doing, we will continuously improve the experience and sense of gain of enterprises in using RMB in cross-border trade, investment and financing activities.

China Central Television, China Media Group (CCTV News): It occurs to us that the State Council executive meeting calls for the increase of central bank lending for rural development and MSBs. Could you elaborate on this special central bank lending?

Sun Guofeng: 

Sun Guofeng: The central bank lending for rural development and MSBs is an inclusive, long-term structural monetary policy tool. Specifically, issued to locally incorporated banks, it supports agriculture, rural areas, and rural people, and MSBs respectively. Those banks are encouraged to expand agro- and MSB-related credit, so as to lower the financing cost of the real economy.

Since the beginning of 2022, the PBC has continued to increase central bank lending and discounts for rural development and MSBs, renewed two monetary policy tools that enabled direct support for the real economy, strengthened targeted liquidity provision and positive incentives, so as to render more direct policy support and make policies more inclusive and effective. Meanwhile, the PBC has guided locally incorporated banks to support weak links in economic growth, such as agriculture, rural areas, and rural people, and MSBs, and boosted financial services for rural areas. Specifically, since the beginning of 2022, the support plan for unsecured inclusive MSB loans has been incorporated into central bank lending to support rural development and MSBs, and the original quota of RMB400 billion for supporting inclusive unsecured MSB loans can be used on a rolling basis and can be increased further when necessary.

Since the beginning of 2022, the central bank lending for rural development and MSBs has delivered desirable results, realized volume increase, coverage expansion and price reduction in agro-related loans and MSB loans. At end-March, the outstanding central bank lending for rural development and MSBs nationwide reached RMB1.85 trillion. Specifically, that for rural development reached RMB516.1 billion with a year-on-year increase of RMB73.9 billion, and that in support of MSBs registered RMB1.3315 trillion with a year-on-year increase of RMB402 billion.

Next, the PBC will implement the decisions and arrangements made by the CPC Central Committee and the State Council and, in line with the requirements of the State Council executive meetings, continue to make better use of the structural functions of central bank lending and other monetary policy tools, so as to extend stronger support to the development of the real economy. Thank you.

The Beijing News: Some homebuyers are unable to make their mortgage payment in certain regions hit by the COVID-19. As we have noticed, many banks have introduced differentiated policies deferring the repayment. Will the PBC give further policy guidance in this regard?

Zou Lan: 

Zou Lan: In China, the outstanding commercial mortgage loans for individuals now stand at RMB38.8 trillion and the outstanding housing provident fund loans are estimated to be RMB7 trillion, these two totaling over RMB46 trillion granted by approximately 100 million loans. Overall, the lending quality is fairly good with a stable non-performing loan (NPL) ratio of around 0.3 percent. That is to say, three out of every 1,000 loans are temporarily past due. Unlike corporate loans, individual mortgage loans are usually of very long maturities. In most cases, borrowers make an equal repayment on their loan interest and principal with their monthly income every month. The income of customers is the most important factor considered by banks in the issuance of such loans. Banks mainly support those who buy a house for living within their reach. Over the years, the quality of personal mortgage loans has been closely related to employment and income in China and is barely influenced by the fluctuations of housing price, which is quite different from some countries.

Since the outbreak of the COVID-19, some residents’ income has been temporarily affected, so they have a demand for deferring monthly installment payments or rearranging repayment schedules. Given these exceptional circumstances, banks, from the perspective of post-lending risk management, need to provide corresponding arrangements. In this context, the PBC, in concert with other four authorities, jointly issued a notice in January 2020, which stated that, targeting four groups of people affected by the COVID-19, financial institutions should flexibly adjust their repayment arrangements for personal credit businesses such as mortgage loans and credit card bills, and properly postpone the repayment deadlines. It is also stated in the notice that for loans overdue owing to the impacts of COVID-19, banks are allowed not to report those overdue records. According to the practices of large banks, the NPL ratio of personal mortgage loans once rose from 0.29 percent to 0.37 percent at the early stage of COVID-19 outbreak, but the quality of loans generally remained stable following the implementation of the policy for deferring loan repayments. As the wave of COVID-19 subsided, residents’ income recovered and loan repayment soon returned to normal. At end-2020, the NPL ratio fell back to 0.29 percent.

As China has experienced COVID-19 resurgence since the beginning of 2022, all sectors are increasingly concerned about the deferral of loan repayment. The PBC took active efforts in guiding major banks to respond to public concerns in a timely manner and to promote and explain existing policies as well as business arrangements such as time schedules of deferred repayments, adjustments to repayment schedules and the access to green channels for the filing of credit information disputes. Next, the PBC will continue to keep a close eye on the development of the COVID-19 and guide banks to focus on the following aspects. First, banks should be more customer-centered. For customers with difficulties in loan repayment as scheduled, banks should work out whether these customers are unable to make the repayment or whether they are unwilling to do so, as well as whether their short-term or medium to long-term repayment ability is affected by the COVID-19, so as to thoroughly implement the repayment deferral policy. Second, banks should step up policy promotion, appropriately streamline business procedures, focus on affected customers, and carry out more effective and targeted measures based on local realities. Third, given that banks deal with a long retail business chain and a diverse range of customers, they need to strengthen business training at all levels, improve their customer service systems, protect customers’ rights and interests associated with credit information, smooth complaint-filing and rights protection channels, and continuously improve their service quality.

In addition, we have noticed that, due to the COVID-19 and some other factors, some pre-sale housing projects have been temporarily suspended with their completion dates postponed. With market-oriented and law-based approaches, the PBC will work with relevant authorities to guide banks to properly handle these challenges in line with laws and regulations through negotiation, after taking a comprehensive consideration of the projects’ realities and the intention of borrowers, so that the legitimate rights and interests of home-buyers are effectively protected.

Shanghai Securities News: In the Yangtze River Delta region as well as some other developed regions with relatively large credit supply, is there any sign of shrinking credit supply due to the COVID-19? Will it weigh on the national credit supply aggregate?

Ruan Jianhong: 

Ruan Jianhong: At present, the national aggregate loans are growing rapidly at a steady pace. As I mentioned earlier, currently, the growth rate of RMB loans stands at 11.4 percent, and they increased by RMB8.34 trillion from the beginning of 2022, RMB663.6 billion more than the increase of the same period last year.

Specifically, the loan growth rate in the Yangtze River Delta region was above the national average. According to the statistics on a comparable basis, at end-March, the outstanding RMB loans in Shanghai, Jiangsu, Zhejiang, and Anhui rose by 11.5 percent, 14.9 percent, 15.8 percent, and 13.7 percent year on year, respectively, which were 0.1 percentage points, 3.5 percentage points, 4.4 percentage points, and 2.3 percentage points higher than the national average, respectively. From the flow perspective, in March, the RMB loans in Shanghai, Jiangsu, Zhejiang, and Anhui delivered an increase of RMB124.7 billion, RMB324.5 billion, RMB395.7 billion, and RMB131.5 billion, respectively, with RMB22.2 billion, RMB51.4 billion, RMB121.2 billion, and RMB39.1 billion more than the increase in the same period last year, respectively.

CNR Business Radio, China Media Group: Could you illustrate the implementation progress and results of the instrument supporting inclusive MSB loans, following the conversion and renewal of the instrument this year?

Sun Guofeng: 

Sun Guofeng: To implement the decisions and arrangements made by the CPC Central Committee and the State Council on supporting MSMEs, following the requirements of the State Council executive meetings, on January 1, 2022, the PBC converted and renewed the two tools that provide direct support for the real economy, namely the instrument supporting deferred repayments on inclusive MSB loans and the support plan for unsecured inclusive MSB loans. In particular, the instrument supporting deferred repayments on inclusive MSB loans was converted into an instrument supporting inclusive MSB loans to continuously strengthen credit support for MSBs.

From the beginning of 2022 to end-June 2023, the PBC will provide funds in the amount of one percent of the incremental balance of inclusive MSB loans issued by eligible locally incorporated banks, thus encouraging them to expand inclusive MSB loans. The instrument supporting inclusive MSB loans has played a vital role in motivating locally incorporated banks to expand inclusive MSB loans. In Q1 2022, the outstanding inclusive MSB loans of eligible locally incorporated banks registered RMB6.6703 trillion, increasing by RMB437.2 billion from the beginning of the year. Thus, the PBC would provide approximately RMB4.4 billion of supportive funds for the instrument supporting inclusive MSB loans. Thank you.

Phoenix TV: What are the main background and considerations for the PBC to establish the Financial Stability Fund as you previously mentioned? What is its position in the financial safety net? What is the relationship between the Financial Stability Fund and the existing deposit insurance fund as well as the industry protection funds? Thank you.

Sun Tianqi: 

Sun Tianqi: Since the 19th CPC National Congress, we have secured solid progress in the critical battle of forestalling and defusing major financial risks at the current stage. At present, China’s financial risks have become moderated and remained under control on the whole. To further improve long-lasting mechanism for the prevention and control of financial risks, the CPC Central Committee and the State Council have decided to set up the Financial Stability Fund for tackling and resolving major financial risks with systemic impacts.

This fund is established based on the experience and practices proved effective in the critical battle of forestalling and defusing major financial risks. It reflects the inherent need to take a forward-looking perspective, to proactively plan ahead, and to enhance the long-lasting mechanism for the prevention and control of financial risks. It is a significant arrangement to protect the property security of the people, and a critical move to coordinate development and security, to maintain financial stability, and to improve the capability of the financial sector to serve the real economy.

The Financial Stability Fund serves as a backup fund under the management of the Central Government to tackle major financial risks. As an integral part of China’s financial safety net to jointly protect China’s financial stability and security, it runs in parallel with and collaborates with the deposit insurance fund and relevant industry protection funds. As the Law of the People’s Republic of China on Financial Stability (Exposure Draft), which is now open for public opinions, states, “the Financial Stability Fund consists of funds raised from financial institutions, financial infrastructures and other entities, and other funds specified by the State Council.”

For regular financial risk resolution, the deposit insurance fund and relevant industry protection funds will be used according to the law and their functions and responsibilities, and the Financial Stability Fund will not be used. When resolving major financial risks, the Financial Stability Fund shall be used in line with due procedures upon approval if there is still a shortfall after all relevant parties, including financial institutions, shareholders and de facto controllers, local governments, the deposit insurance fund, and relevant industry protection funds, have sufficiently input their corresponding resources according to the law, and their functions and responsibilities. Thank you.

Luo Yanfeng: Thank you for your questions. We have answered questions from 15 media outlets within one hour today. As we have run out of time by now, this concludes today’s press briefing. I’m aware that many of you still have questions, so you may contact the Press Office and we will answer your questions through other channels.

We appreciate our guests and all the journalists present today. Thank you very much.