State Council’s Financial Work Report Calls for Increasing Share of Direct Financing, Growth in Supply of Long-term Capital

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The latest State Council financial work report outlines key focal points for Chinese financial policy in the near-term future.

On 30 October, the People’s Bank of China (PBOC) published the State Council financial work report (国务院关于金融工作情况的报告) made by PBOC governor Yi Gang (易纲) before the 37th meeting of the Standing Committee of the 13th National People’s Congress.

The Report hailed “large-scale increase in the comprehensive strength of the financial sector” in 2022, with China’s total financial sector assets exceeding 400 trillion yuan, and 5 of China’s banking and insurance institutions emerging as global systemically important financial institutions.

The Report further points out that China’s bond, stock and insurance markets are all currently ranked second place globally, while foreign reserves have remained the world’s largest for the 17th consecutive year.

The State Council highlighted successful efforts to stymie systemic risk in the Chinese financial sector. During the period from 2017 to 2021, China’s financial sector actively disposed of more than 12 trillion yuan in non-performing assets, while regulators also managed to contain risk in relation to Mingtian, Anbang, Haihang Group and Fangzheng Group.

With regard to financial policy in 2022, the Report points out that Chinese interest rates are “at medium levels globally and comparatively low levels amongst major developing economies, ensuring that price trends are steady and containable while vigorously expediting stable economic growth.”

Key focal points for work in future will include:

  1. Continuing to implement steady monetary policy. “In future, China has the conditions for maintaining normal monetary policy to the greatest extent over the long-term, and maintaining the stability of the value of the currency.”
  2. Employing the role of loan prime rate (LPR) reforms, further driving financial institutions to reduce real interest rates for loans, reducing comprehensive financing costs for enterprises and costs for personal consumer loans.
  3. Strengthening the management of expectations, strengthening the flexibility of the renminbi exchange rate, and maintaining the basic stability of the renminbi exchange rate at a rationally balanced level.
  4. Lawfully including all forms of financial activity within the purview of regulation; strengthening the recognition of illegal financial activity, and striking heavily against “unlicensed driving.”
  5. Appropriately advancing and completing as soon as possible the rectification of the financial activities of Internet platform enterprises and implementing normalised regulation. This involves upholding the “two unwaverings” (两个毫不动摇) and supporting the lawful undertaking of financing activities by capital, while also firmly preventing the disorderly expansion of capital.
  6. Guiding more funds to invest in advanced manufacturing, strategic emerging industries, and better servicing key and core tech breakthrough enterprises and elite special new enterprises.
  7. Raising the share of direct financing, increasing the supply of long-term capital, and satisfying the diverse, differentiated financing needs of different types of enterprises with different lifecycles.
  8. Upholding the policy imperatives of “building systems, non-interference and zero tolerance” (建制度、不干预、零容忍); strengthening the development of capital market infrastructure, comprehensively implementing share issuance registration systems when appropriate, further raising the quality of listed companies, expanding the vigour of various types of medium and long-term investment, and strengthening protections for investors.
  9. Under the precondition of security and controllability, further improving the management model for equal treatment prior to market entry (of foreign investors) and the negative list; increasing the convenience of investment in China’s financial markets.
  10. Maintaining the stability and order of real estate finance, satisfying elastic and inelastic demand for housing, supporting protection for delivery of homes and stabilising livelihoods; driving the development of new forms of housing development.