China’s property market gets financial reprieve; central bank calls for more exchange rate flexibility

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A round-up of China’s top financial headlines as of 14 July 2023:

China’s policymakers have offered support to beleaguered real estate companies in the form of an extension of policies granting them financial breaks.

The chief of China’s central bank has flagged further flexibility for the renminbi exchange rate in an essay on the implementation of the country’s monetary policy.

Chinese foreign trade hit a record high of more than 20 trillion yuan in the first half of 2023, while second-quarter GDP growth is expected to surpass 7%.

In tech-related economic news, Premier Li Qiang has convened a meeting with China’s Internet giants flagging support for their further development while Beijing has also issued a new set of regulations governing generative AI.

Real estate financing obtains further support with greater optimization of 16 finance measures (Cailian She

On 10 July, the central bank and the State Administration of Financial Regulation (SAFR) issued the “Notice on Extending the Period of Financial Support for the Stable and Healthy Development of the Real Estate Market” (关于延长金融支持房地产市场平稳健康发展有关政策期限的通知). If the relevant policies in the “Notice” have an applicable period, the applicable period shall be uniformly extended to December 31, 2024.

“Given comprehensive consideration of the current real estate market conditions, in order to guide financial institutions to continue to provide extensions for the outstanding debt of real estate companies and increase financial support for guaranteeing property delivery, the People’s Bank of China (PBOC) and SAFR have decided to extend the applicable period of relevant policies,” officials from PBOC and SAFR said. 

The directive is reportedly an optimization of the previous “16 Financial Articles” (金融16条). The continuation of the policy focuses on the area of real estate development, including extending outstanding financing such as loans to support real estate development and trust loans, as well as extending special loans to support project-related personnel to perform their duties.

“The two policies of this extension mainly involve loans in default and support financing,” said Yan Yuejin, research director of the E-House Research Institute. “If no extensions are provided, the number of loans in default may increase, or some banks will be unwilling to provide support financing, leading to new pressure on funds for the guaranteed delivery of properties.”

Yan said that the extension is to prevent and resolve financial risks in relation to loans and at the same time ensure that there is sustainable capital injection into the guaranteed delivery of property.

China’s central bank governor calls for strengthening renminbi exchange rate flexibility (Cailian She

Yi Gang, Governor of the People’s Bank of China (PBOC), recently published an article entitled “The Independence, Effectiveness, and Economic and Financial Stability of Monetary Policy” (货币政策的自主性、有效性与经济金融稳定) in “Economic Research”, giving a general description of China’s monetary policy adjustments, and explaining its basic logic and operating mechanisms. 

Yi Gang pointed out in the article that interest rate policy and exchange rate policy must first follow the laws of the market economy, which is the key to maintaining economic and financial stability and curbing systemic financial risks at the macro level. These two types of policies do not run in parallel. Interest rates are the core and framework of monetary policy, and exchange rates are formed by the market under the influence of interest rate policy. 

Monetary policy adjustments must firstly prioritise domestic goals, and select optimal policies for areas such as interest rates to achieve domestic goals. Secondly, adjustments must create a good environment so that the exchange rate is determined by the market.

Yi Gang said that in accordance with this mentality, in an environment where there have been sizeable changes to the interest rates of major developed economies in recent years, China’s monetary policy has not just passively followed others, but insisted on remaining “self-centered”, so that its autonomy and effectiveness have increased significantly. 

“While doing a good job in counter-cyclical regulation, we also pay attention to cross-cycle regulation and cross-regional balance. We are relatively cautious in both tightening and loosening directions, leaving room for monetary policy. In the normal range, the real interest rate roughly matches the potential economic growth rate.”

China’s foreign trade hits record high in first half, breaches 20 trillion yuan (CCTV

At a press conference held on 13 July by the State Council Information Office, an official from the General Administration of Customs said that the total value of China’s foreign trade imports and exports in the first half of the year increased by 2.1% compared with the same period last year. It exceeded 20 trillion yuan for the first time, marking a record high for the period.

According to customs data, in the first half of this year, the total value of China’s import and export of goods trade was 20.1 trillion yuan, for a year-on-year increase of 2.1%. Exports were 11.46 trillion yuan, for a year-on-year increase of 3.7%, while imports were 8.64 trillion yuan, for a year-on-year decrease of 0.1%. 

Lv Daliang, Director of the Statistical Analysis Department of the General Administration of Customs, pointed out that total exports of the “three new” products, namely electric passenger vehicles, lithium batteries, and solar cells, increased by 61.6%, driving overall export growth by 1.8 percentage points.

In the first half of the year, China’s imports and exports to countries that are part of the “Belt and Road” increased by 9.8% year-on-year, 7.7 percentage points higher than the overall growth rate. 

China’s imports and exports to ASEAN, its largest trading partner, were 3.08 trillion yuan, for a year-on-year increase of 5.4%. Imports and exports to the EU were 2.75 trillion yuan, for a year-on-year increase of 1.9%. Imports and exports to the United States were 2.25 trillion yuan, for a year-on-year decrease of 8.4%.

Second-quarter GDP growth could hit 7% (Diyi Caijing

Economists believe that China’s economy is gradually recovering, but the downward pressure on the economy will still remain in future, and relevant supporting policies are expected to be launched in succession. Their average year-on-year GDP growth forecast for the second quarter is 6.97%, and the median is 7%.

According to the “China Macro-Financial Analysis” report for the second quarter of 2023 released on 11 July by the Institute of Finance and Economics at the Chinese Academy of Social Sciences, given the slowdown in the momentum of economic recovery and low base effects, the year-on-year GDP growth rate in the second quarter may reach around 7%. The quarter-on-quarter growth rate is likely to be lower than that in the first quarter. Given the premise that policies will be strengthened in due course, the annual economic growth rate is expected to be around 5.5%.

Li Chao, chief economist at Zheshang Securities, said that economic performance in June maintained the preceding trend. He estimates that the GDP growth rate in the second quarter will be 6.7%, and the annual GDP growth rate will be 5.1%. 

In the case of insufficient endogenous recovery by enterprises, monetary policy may still be further strengthened in the second half of the year to help enterprises restore profits from the cost side. The reserve ratio could be cut in the third quarter, and interest rates could be cut in the fourth quarter. 

Premier Li Qiang convenes conference with China’s Internet giants  (CCTV

At the conference, heads of companies including Meituan, Xiaohongshu, Haizhi Online, Huolala, Alibaba Cloud, XCMG Hanyun, ByteDance, and Zhaopin delivered speeches, while the heads of Pinduoduo, JD.com, Ouyeel, BOSS Zhipin, Aerospace Cloud Network and Kaos submitted written statements.

Li Qiang pointed out that the Internet platform economy has emerged as part of broad development trends in our era, providing new space for expanding demand, as well as a new engine for innovation and development, new channels for employment and entrepreneurship, and new support for public services. 

On the new journey of the comprehensive establishment of a modern socialist nation, the platform economy has great potential. It is hoped that the majority of platform companies will look to the future with firm confidence, practice their “internal strength” and work harder, continuing to promote innovation and breakthroughs and better empower the development of the real economy. 

Li Qiang stressed that governments at all levels should strive to create a market environment for fair competition, improve policies such as investment access, new technology and new business security assessment, improve a transparent and predictable regulatory system, reduce the cost of corporate compliance operations, and promote healthy industry development. 

It is necessary to establish and improve normalized communication mechanisms with Internet platform companies, keep abreast of the difficulties and demands of companies, improve relevant policies and measures, and promote the healthy and sustainable development of the platform economy.

Provision regulations on generative AI services launched (People’s Daily

A senior official from the State Cyberspace Administration said that the “Measures” aim to promote the healthy development and standardized application of generative artificial intelligence, safeguard national security and social public interests, and protect the legitimate rights and interests of citizens, legal persons and other organizations.

The “Measures” will come into effect on 15 August 2023. They state that the government adheres to the principle of combining development and security, promoting innovation and rule by law, and adopt effective measures to encourage the innovation and development of generative artificial intelligence.

Effective measures should also be taken to prevent underage users from overly relying on or indulging in generative artificial intelligence services.

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