New PBOC Governor Highlights Three Key Missions in First Public Speech

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The Chinese central bank’s new governor has highlighted three key work missions for the outset of his tenure in the first public speech delivered since his appointment.

Speaking at the China Development Forum on 25 March, the People’s Bank of China’s newly appointed governor Yi Gang (易纲) said that three key missions for the central bank would be the effective implementation of stable and neutral monetary policy; advancing financial sector reform and opening, and effectively prosecuting the war for the prevention of financial risk, alongside maintaining the overall stability of Chinese financial system.

The areas outlined by Yi are entirely consistent with the policy themes mooted by the Chinese central bank in the lead up to preceding governor Zhou Xiaochuan’s retirement.

Yi Gang said that stable and neutral monetary policy would be used to maintain an appropriate monetary and financial environment for supply-side structural reforms and high-quality growth.

There will be moderate loosening and tightening of the total money supply, while the central bank will keep liquidity in the banking system at rationally stable levels, as well as maintain rational growth in the M2 money supply, loans and total social financing.

Yi further pointed out that the omission of an explicit M2 or total social financing target in Government Work Report for 2018 is significant of Beijing’s greater emphasis upon high-quality growth.

“Under the precondition that total volumes are controlled, in structural terms greater emphasis will be given to increases in quality, and the appropriate and targeted support for weak links in the economy, and better servicing the real economy.”

According to Yi Beijing will also further expand support for financial inclusion and green financing, specifically targeting poverty allegation, micro-enterprises and the “three agricultures.”

With regard to the second key work mission of financial reform and opening, Yi Gang said that “there are three rules that we must observe for financial sector opening; the first is that the financial sector is a competitive services sector, and should abide by the principles of equal treatment with domestic citizens prior to entry and the negative list.

“The second is that the financial sector’s overseas opening must be mutually coordinated with exchange rate mechanism reforms and the progress of capital account convertibility, and jointly advanced.

“The third is that financial sector opening must be as strongly emphasised as the prevention of financial risk, and the extent of financial opening must correspond to financial regulatory capabilities.

Yi said that in order to fulfil these three rules, China would further loosen restrictions on entry into the financial sector, steadily advance the internationalisation of the renminbi, as well as promote two-way opening of financial markets.

With regard to the third key mission of financial risk, Yi said that Beijing would focus on steadying macro-economic leverage, improving the twin-pillar adjustment framework of monetary policy and macro-prudential policy; strengthening macro-prudenital regulation and raising overall systemic risk prevention capability.

According to Yi China will vigorously develop a multi-tier capital market and steadily increase the percentage of direct financing, as well as “further stabilise the quite rapid growth in total social debt and contain the accumulation of risk and hidden hazard via multiple methods including market-based debt-for-equity swaps, the advance of mixed-ownership reforms, the development of direct financing, stronger capital restraints, and the standardisation off-balance sheet operations and channels.

Yi said that China will also “resolutely prohibit illegal fund-raising activities and strengthen financial risk source regulation and monitoring, and strengthen management of entry into the financial sector…without approval from financial regulators, it is forbidden to engage in or covertly engage in financial activity.”

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