Set the tone of this year’s central bank monetary policy priorities of the meeting came.
The 2021 work conference of the People’s Bank of China (PBOC) was held in the morning of Jan 4 in the form of a video, which summarized the major work for 2020, analyzed the current situation and made plans for the work in 2021, according to the PBOC’s official website on Jan 6.
For this year’s key work, the meeting put forward detailed plans from ten aspects, including the following:
First, we will pursue a prudent monetary policy that is flexible, precise, reasonable and appropriate. We will keep the growth of broad money supply and non-government financing basically in line with nominal economic growth. We will strengthen macro-prudential management, guide market expectations, and keep the RMB exchange rate basically stable at an appropriate and balanced level.
Second, we will continue to give full play to the role of structural monetary policy tools and precision drip irrigation of credit policies, and put in place institutions and mechanisms for the financial sector to effectively support the real economy including small and micro businesses.
Third, we will implement major policy decisions and plans for achieving carbon neutrality, and improve the policy framework and incentive mechanisms for green finance. We will guide financial resources toward green development.
Fourth, we will accelerate the improvement of the macro-prudential policy framework and bring major financial activities, financial institutions, financial markets and financial infrastructure under macro-prudential management. We will strengthen monitoring and assessment of systemic financial risks, and work to establish a macro-prudential stress test system step by step. We will accelerate the establishment and improvement of macro-prudential management frameworks in key areas such as cross-border capital flows. We will improve the regulatory system for financial holding companies.
Fifth, we will continue to guard against and defuse financial risks. We will strengthen prudential supervision over the financial activities of Internet platform companies. Supervision in the field of payment shall be strengthened. Individual credit investigation business shall be operated with license, and excessive marketing of financial products shall be strictly prohibited to induce excessive liabilities.
Sixth, we will deeply participate in global financial governance, closely prevent and control external financial risks, and steadily expand two-way financial opening-up. We will properly address the debt problems of low-income countries.
Seventh, we will steadily promote the internationalization of the RMB. We will promote trade and investment facilitation with a view to serving the real economy and acting along the trend. We will improve policies and systems related to the use of the RMB.
Eighth, we will deepen reform of financial markets and financial institutions. We will implement a long-term mechanism for the real estate sector and implement a prudent financial management system for the real estate sector.
Ninth, we will continue to improve foreign exchange management and services. We will support enterprises in appropriately and prudently using foreign exchange derivatives to manage exchange rate risks. We will strictly crack down on illegal activities in the foreign exchange sector with a “zero-tolerance” attitude.
Ten, we will improve financial services and management. We will make solid progress in comprehensive statistics on the financial sector. We will improve the development of a modern financial system for central banks. We will further modernize the governance of the payment industry. We will steadily carry out pilot tests on the digital RMB.
Wen Bin, chief researcher at Minsheng Bank, told China Securities that the central bank’s work conference this year will focus on financial support for the real economy, preventing and defusing financial risks, and further expanding and deepening financial reform and opening up. In response to the impact of the epidemic last year, the monetary policy strengthened counter-cyclical regulation, which made the growth of M2 and social financing significantly higher than that of the previous year, but also saw a rapid rise in the macro leverage ratio. With the recovery of economic growth this year, it is necessary to re-emphasize the basic stability of the macro leverage ratio to ensure the smooth operation of the macro economy. This year, therefore, the total target of monetary policy is reasonable moderate, that maintain a broad money and social financing scale growth basic matching with nominal economic growth, more emphasis on flexible precision under the total target, also is the focus of the real economy in key areas and weak links, such as financial, green finance, small micro enterprise of science and technology, etc., structural monetary policy tools will play more role.
We will strengthen “prudent” oversight of financial activities on Internet platforms
Compared to the previous central bank repeatedly stressed the prudent monetary policy, give play to the role of structural tools for precise irrigation and defuse financial risks and deepen financial reform, to prevent the meeting for the key work in the deployment of the central bank this year, there are some relatively novel idea, focus on ensuring financial innovation under the precondition of prudential regulation development, strict control external financial risk, implement carbon neutral perfect green finance.
Among them, to ensure that financial innovation, under the precondition of prudential supervision development conference, to continue to prevent defuse financial risks, strengthen the Internet platform company prudential supervision of financial activities, firmly implement the party central committee and state council on strengthening the antitrust and sprawl, to prevent capital as a whole the financial development and financial security policy decisions, to supplement the supervision system. Over-marketing of financial products and inducing excessive indebtedness are strictly prohibited. Illegal and irregularities that infringe upon the legitimate rights and interests of financial consumers are severely investigated and punished. We will ensure that financial innovation develops under the premise of prudent regulation, and that the quality and competitiveness of inclusive financial services improve steadily.
In addition, we will improve the level of financial services and management, promote the building of a financial rule of law system, further modernize the governance of the payment industry, and improve the application and management of financial technology.
It is worth noting that the above-mentioned “personal credit investigation business must be licensed” and “excessive indebtedness of financial products is strictly prohibited” are both subject to regulatory actions recently. On the one hand, the People’s Bank of China recently imposed a huge fine of nearly 20 million yuan on Pengyuan Credit Investigation Co., Ltd. (hereinafter referred to as “Pengyuan Credit Investigation”) for engaging in personal credit investigation activities without approval, which is the largest fine the People’s Bank of China has issued to an approved credit investigation agency in China.
Silver insurance regulatory commission recently issued a risk warning alert network platform induced excessive borrowing, points out some network platform to obtain a huge number of customers through all kinds of network consumption scenarios, excessive marketing loan or type of credit card overdraft financial products, such as induced excessive consumption, and to remind the broad masses of consumers’ rational consumption, live within our means, do not “to raise credit loan” “long lending”.
We will guide market expectations and keep the exchange rate basically stable
Since the second half of last year, with the rapid appreciation of the RMB exchange rate against the US dollar, the issue of exchange rate stability has once again become the focus of official attention. The Central Economic Work Conference held not long ago also reiterated the goal of “maintaining the basic stability of the RMB exchange rate at a reasonable and balanced level”. With the dollar continuing to weaken and the offshore renminbi trading above 6.44 per dollar, there have been renewed concerns about cross-border capital flows being challenged and hot money inflows.
In this context, the PBOC’s annual work conference and the State Administration of Foreign Exchange’s 2021 National Foreign Exchange Management Video Conference held on the same day both proposed new targets for cross-border capital flow management this year.
The central bank meeting proposed to deepen the market-oriented reform of the RMB exchange rate, strengthen macro-prudential management, guide market expectations, and keep the RMB exchange rate basically stable at a reasonable and balanced level. We will strictly prevent and control external financial risks and steadily expand two-way opening-up in the financial sector. We will move forward with the internationalization of the RMB in a prudent manner, with a view to serving the real economy and acting along the trend to promote trade and investment facilitation. We will move forward with capital account opening in a prudent and orderly way, and support enterprises in using foreign exchange derivatives in a reasonable and prudent manner to manage exchange rate risks. We will move faster to improve the integrated macro-prudential and micro-regulatory management framework for the foreign exchange market. We will strictly crack down on illegal activities in the foreign exchange sector with a “zero-tolerance” attitude.
The State Administration of Foreign Exchange also said it would guard against abnormal cross-border capital flows this year. We will strengthen monitoring and assessment of the foreign exchange situation, pay close attention to the impact of external shocks such as epidemics, guide financial institutions and enterprises to adhere to the principle of risk neutrality, crack down on foreign exchange speculation, strengthen market expectations management and macro-prudential management, and avoid disorderly fluctuations in the foreign exchange market.
In addition, we will deepen reform and opening up in the field of foreign exchange. This year, the SAFE will focus on the two-way opening of the financial market and promote the opening of the capital account in a steady and orderly manner. We will improve the management of funds for overseas institutions to issue stocks and bonds in China, carry out trials for cross-border investment by private equity funds, reform the management of foreign debt registration, and facilitate cross-border investment and financing. We will expand trials to facilitate trade and foreign exchange payments and promote the development of new forms of trade. We will build an open and diversified foreign exchange market with sound functions, and support financial institutions in issuing more foreign exchange derivatives that meet market needs.
Recently, the People’s Bank of China, the State Administration of Foreign Exchange and other ministries and commissions have introduced reform measures such as improving the use of cross-border RMB and relaxing the limit of overseas lending by domestic enterprises to meet the capital needs of enterprises “going global”, which are regarded as measures to not only relax the outflow of capital of enterprises “going global” but also send a signal of stable exchange rate.
Guan Tao, global chief economist of Bank of China Securities, said that when the foreign exchange supply exceeds demand and the local currency seems to appreciate, if the exchange rate does not like too much volatility, the foreign exchange policy is nothing more than to increase foreign exchange reserves, expand capital outflows or limit capital inflows. These quantitative tools also have their pros and cons. Policy choice is a choice of objectives, and it is impossible to want both. It is expected that this year will be a combination of “increasing exchange rate flexibility + expanding capital outflow + regulating capital inflow”.
How does improving the green financial system affect banks?
In terms of improving green finance, the meeting proposed to implement major decisions and arrangements on achieving carbon neutrality and improve the policy framework and incentive mechanism for green finance. We will make good policy design and planning, guide financial resources toward green development, enhance the ability of the financial system to manage risks related to climate change, and promote the establishment of a carbon emission trading market to put a reasonable price on carbon emissions. We will gradually improve the green finance standard system, clarify the supervision and information disclosure requirements of financial institutions, establish a system of policy incentives and constraints, improve the green financial products and market system, and continue to advance international cooperation on green finance.
Industrial research recently released in China banking industry according to the article, in order to achieve the carbon up to the peak in 2060 and 2030 years ago the long-term climate goals of carbon neutral, the whole social economic system in China require fundamental changes to the financial system is no exception, carbon-neutral bank financial business development of key areas under target adjustment. Specifically, it includes the following aspects:
First, the industry structure supported by the financial services of commercial banks is facing adjustment. With the proposed carbon neutral goal, the transformation of China’s economic and industrial structure will be further deepened, and the credit business of banks will also need to further tilt to low-carbon industries and strengthen support for green industries. At the same time, under the enhanced emission reduction target, renewable energy, new energy vehicles, carbon capture and storage (CCS/BECCS) and other green industries have great potential for development.
Second, climate investment and financing will increasingly become an important area of green finance for banks. On the one hand, in the bank’s green credit, the proportion of climate credit shows a gradually rising trend. On the other hand, the top-level design document of climate investment and financing and the introduction of official statistical system will further promote and standardize the development of climate investment and financing.
Third, the construction of a national carbon market will be accelerated, and the space for carbon finance will be gradually opened. The carbon neutral target will increase the supply and demand of the carbon market, thus increasing the effective scale of the carbon market, which in turn can stimulate the carbon neutral actions of enterprises and residents. Therefore, with the proposed carbon neutral target, the construction process of China’s national carbon market will also accelerate.