Curbing debt leaves room for opening-up
PBOC says last month’s fall due to fluctuations in global asset prices
China’s once-expanding debt has been curbed under tightened governing measures and regulations, leaving more space for further financial opening-up and reforms, said Zhou Xiaochuan, the central bank governor, on Friday.
“We have entered a stage of stabilizing and gradually reducing the leverage level” after financial regulators cracked down on portions of the shadow banking business, Zhou, governor of the People’s Bank of China, said at a news conference during the ongoing first session of the 13th National People’s Congress.
Given the regulatory improvements and risk reduction, steps toward other financial reforms would be “faster and larger”, including pushing forward the yuan’s internationalization and lowering market access barriers in the financial sector, he said.
Improvement of the financial regulatory framework, targeted at prevention of systemic risks in a more efficient way, should be part of overall financial reform, said Zhou, adding that the central bank will play a more important role in the restructured regulatory system.
In November, the country established a new financial regulatory body, the Financial Stability and Development Committee, under the supervision of the State Council, China’s Cabinet. The committee is expected to better coordinate supervision functions among banking, securities and insurance regulators while fixing loopholes by issuing unified rules.
Premier Li Keqiang, in the Government Work Report he delivered on Monday, said the nation’s “prudent monetary policy will remain neutral, with easing or tightening only as appropriate”. While the report did not include the annual growth target for M2, the broad measure of money supply, or expected credit growth, he said, “We need to make sure that the valve of aggregate monetary supply is well under control, we maintain moderate growth of M2 money supply, credit and aggregate financing, and ensure a reasonable, stable level of liquidity.”
Yi Gang, vice-governor of the central bank, said at the news conference on Friday that indicators including market interest rates and the level of excess reserves could be used to measure the liquidity situation as M2 gradually becomes weaker as a measure of real economic growth.
The country’s new yuan-de- nominated loans in February stood at 839.3 billion yuan ($132.5 billion) — 326.4 billion yuan less than in the same period a year earlier, marking a significant decline from a recordhigh 2.9 trillion yuan in January, central bank data showed.
Zhu Haibin, chief China economist with JPMorgan Chase & Co, said, “We look for financial and corporate deleveraging efforts to continue in 2018, with further moderate slowing in overall credit growth.”
He said he expected no change in benchmark interest rates this year. However, if there’s a surprising increase in inflation with growth momentum holding up well, or rising inflation along with market expectations for more aggressive rate hikes by the US Federal Reserve, “the likelihood of a policy rate hike cannot be excluded”.
China’s foreign exchange reserves will basically remain stable given the stabilizing economic growth prospects and the yuan’s exchange rate, the central bank said on Friday.
Zhou Xiaochuan, governor of the People’s Bank of China, said the country’s forex reserves have been affected by international asset prices but there have not been any major changes in China’s balance of international payments.
The country saw its forex reserves fall in February to $3.134 trillion, down $26.98 billion from the previous month, following 12 consecutive months of rises, according to data from the State Administration of Foreign Exchange.
“The value of the forex reserves moves in line with the price change of stocks and bonds in which they (forex reserves) are invested,” Zhou said at a news conference on the sidelines of the annual session of the 13th National People’s Congress. “But there have not been any major changes in China’s balance of international payments and foreign exchange condition,” Zhou said.
Pan Gongsheng, vice-governor of the central bank and head of the SAFE, said the recent rise of the dollar index and the decline of international bond and stock prices are the two main factors that led to the drop in China’s forex reserves in February.
China has stepped up scrutiny of its foreign exchange market after the market experienced some big shocks, Pan said, noting that the regulator has adopted a macro pruden- tial approach on external debts and required banks to put aside risk reserve in forward settlement of foreign exchange.
The country has also stepped up crackdown on transaction fraud and illegal money changing through “underground banks” while increasing the verification on the authenticity of cross-border payments, Pan said.
While China has basically exited countercyclical adjustments on capital outflows, Pan stressed that the country will maintain its policy consistency on supervision measures pertaining to crossborder capital movement.
China’s export growth rebounded to 44.5 percent year-on-year in February, the fastest pace in three years. Import growth fell to 6.3 percent year-on-year, resulting in a trade surplus of $33.74 billion against market expectations of a deficit.
Zhao Yang, chief China economist at Nomura Securities, said in a research note that the robust January-February trade data suggest that the yuan could be supported by a relatively benign flow backdrop and favorable global growth outlook in 2018, especially if the Chinese authorities manage to engineer a gradual and controlled deleveraging process to stabilize the economy.