Caixin
Jun 15, 2021 09:20 PM
FINANCE

Briefing: What China’s Financial Regulators Told Us at the Lujiazui Forum

China’s top financial regulators delivered wide-ranging speeches that took on inflation, IPOs, the yuan exchange rate and carbon emissions at Shanghai’s 13th Lujiazui Forum that ended on June 11. We’ve collected some of the key remarks in a special briefing for readers. The original comments were made in Chinese. They’ve been translated and edited for length and clarity.

Combating inflation

Yi Gang, governor of the People’s Bank of China (PBOC)

• It is estimated that China’s consumer price index will rise gradually this year, but the annual increase is expected to be below 2%. Admittedly, the global Covid-19 situation, economic recovery, macro conditions and economic policies are all possible causes of uncertainties. We still need to stay on high alert against both inflationary and deflationary pressures arising from different aspects.

• Currently, China’s interest rates are a bit higher than those of major advanced economies, while lower than those of other developing countries and emerging economies. An appropriate interest level is conducive to stable and sound development of all markets.

• While keeping the aggregate policy appropriate, monetary and credit policies should focus on two structural issues: developing green finance and inclusive finance.

IPO issuance

Yi Huiman, chairman of the China Securities Regulatory Commission

• Recently, many have held the view that IPO issuance has been tightened. We believe that new listings have neither been tightened nor relaxed (link in Chinese). When it comes to the pace of IPOs, we need to take into account market capacity, liquidity and the coordinated and balanced development of the primary and secondary markets so as to foster an IPO ecosystem that meets market expectations.

• Why do some market players have the feeling that there is tightening? There may be several factors:

First, the implementation of the new securities law put more pressure on the responsibility of intermediary institutions.

Second, supervision of shareholder information disclosure has been strengthened.

Third, improvement of the evaluation system of scientific, innovative IPO applicants, which is helpful in preventing a disorderly expansion of capital and regulatory arbitrage, and maintaining an open, fair and just IPO issuance order.

Growing financial risks

Guo Shuqing, Communist Party secretary of the PBOC and chairman of the China Banking and Insurance Regulatory Commission

Measures should be taken to actively deal with a possible rebound in nonperforming loans. Given the implementation of the loan payment deferral policy for micro, small and medium businesses hit by the epidemic, it is expected that some of the loans deferred will eventually turn into bad assets. Credit risks facing banking institutions are on the rise due to housing bubbles and housing-related financial products in some regions, debt service pressure of a number of local governments’ financing platforms and the growing default ratio of some large and medium-sized companies. The situation for some small and medium-sized financial institutions is more severe. Therefore, banks must properly classify their assets and increase loan loss provisions to ensure faster disposal of nonperforming assets.

We must strictly guard against any resurgence of shadow banking activities. China’s shadow banking sector is still large and it could easily rebound, even after it dropped by 20 trillion yuan ($3.12 trillion) from the peak after rectification. Efforts must be made to prevent financial institutions from overleveraged and complex cross-sector financial products, and put an end to all kinds of “loan-like” products before they emerge. The new asset management rules must be implemented effectively to ensure successful overhaul of existing asset management products.

• We must firmly crack down on illegal public offerings of securities, prevent financial derivative investment risks and remain vigilant against Ponzi schemes.

Yuan exchange rate

Pan Gongsheng, deputy governor of the PBOC and director of the State Administration of Foreign Exchange

• The factors that influence the yuan exchange rate are complex, and two-way fluctuations of the currency will become normal (link in Chinese).

• Market players should adapt to the two-way movement in the exchange rate and develop a risk-neutral philosophy in managing their foreign exchange exposure.

• Do not bet on the appreciation or depreciation of yuan, enterprises that always gamble on that will definitely lose.

Carbon emissions

Liu Guiping, deputy governor of the PBOC

• The PBOC is stepping up efforts to design tools (link in Chinese) that support carbon emission reduction, such as providing low-cost financing to qualified financial institutions, who in turn provide preferential interest rates for projects with significant carbon reduction effects.

• According to the estimates of mainstream institutions at home and abroad, the scale of investment required for China to reach peak carbon emissions by 2030 and achieve carbon neutrality by 2060 is between 150 trillion yuan and 300 trillion yuan, equivalent to an average annual investment of 3.75 trillion yuan to 7.5 trillion yuan. Behind the huge demand for funds, there are huge investment opportunities. Everyone can see clearly the trend of the vigorous development of the green industry, but we should remain calm and rational and be highly vigilant against “rushing headlong into mass action.”

Contact reporter Tang Ziyi (ziyitang@caixin.com) and editor Joshua Dummer (joshuadummer@caixin.com)

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