Important meeting of the central bank! Actively and steadily promote the development of legal digital currency in the second half of the year

In early August, various ministries and commissions held mid-year work meetings to summarize the work in the first half of the year and make arrangements for key tasks in the second half of the year.

On August 3, the central bank held a video conference on the work in the second half of 2020 to summarize the work in the first half of the year, analyze the economic and financial situation, and make arrangements for key work in the second half of the year. Yi Gang, governor of the central bank, made a work report, and Guo Shuqing, secretary of the central bank's party committee, presided over the meeting and made a summary. Deputy governors Chen Yulu, Pan Gongsheng, Fan Yifei, Liu Guoqiang, and Xu Jiaai, head of the resident discipline inspection and supervision team, attended the meeting.

Judging from the meeting’s deployment of key monetary policy tasks for the second half of the year, the most relaxed period of monetary policy has passed. Monetary policy in the second half of the year will mainly focus on the implementation of policy tools announced previously, and new operations are expected to be less than in the first half of the year.

At the same time, the sudden outbreak disrupted the rhythm of economic and financial activities, and the transition period of the new asset management regulations was therefore extended for one year. This year was the final year of the three-year battle to prevent and resolve major financial risks, but the regulatory authorities did not intend to postpone the end of the battle. Instead, they clearly promoted the battle to be concluded as scheduled, and will speed up the filling of the gaps in the financial risk management system and improve the emergency response mechanism for major financial risks, thereby promoting the normalization of risk prevention and control and risk management.

The recent mid-year work conference of the Political Bureau of the CPC Central Committee made it clear that the cross-cycle design and adjustment of macroeconomic regulation should be improved to achieve a long-term balance between stabilizing growth and preventing risks. Many analysts believe that under the guidance of the principles of cross-cycle and long-term balance, monetary policy will be characterized by moderate total volume and loose structure; precise drip irrigation of loose credit and cost reduction for manufacturing and small and medium-sized enterprises, but also avoid the overall relaxation of liquidity and the financial risks caused by it.

Review of the achievements in the first half of the year

In summarizing the work in the first half of the year, the meeting believed that since 2020, in the face of the sudden impact of the new crown pneumonia epidemic and the complex and severe domestic and international situation, the central bank has decisively increased the intensity of countercyclical monetary policy adjustments, maintained financial market stability, prevented and resolved major financial risks, further deepened financial reform and opening up, innovated financial services, and made every effort to do a good job in the "six stability" and "six guarantees" work, providing strong support for the rapid recovery of the national economy.

Specifically, in the first half of the year, monetary policy decisively increased countercyclical regulation, reduced the reserve ratio three times in total, and provided 300 billion, 500 billion, and 1 trillion yuan of re-loans and re-discounts in stages and in a gradient manner in accordance with the needs of emergency supply guarantee for epidemic prevention and control, support for resumption of work and production, and protection of market entities, expanded the credit supply of large banks and policy banks, supported the expansion of corporate credit bond issuance, and maintained reasonable liquidity in the financial market. At the end of June, the broad money M2 and social financing scale increased by 11.1% and 12.8% year-on-year, respectively, significantly higher than the same period last year; in the first half of the year, new RMB loans amounted to 12.1 trillion yuan, an increase of 2.4 trillion yuan year-on-year. A variety of monetary policy tools were used in combination to guide the downward trend of interest rates in the financial market, promote the financial system to give profits to enterprises throughout the year, and promote the interest rates of inclusive small and micro enterprises, private enterprises, manufacturing and other key areas to fall to historical lows. The average interest rate of newly issued inclusive small and micro loans in June was 5.08%, down 80 basis points from the end of last year.

The directness and precision of financial policies have been significantly improved. On June 1, the central bank issued and implemented two direct tools to support corporate loan deferrals and expand credit loans, further extending the loan repayment deferral period for small, medium and micro enterprises to the end of March 2021, encouraging banks, especially local corporate banks, to handle deferred principal repayments for inclusive small and micro loans, expand inclusive credit loans for small and micro enterprises, and help enterprises, especially small, medium and micro enterprises, tide over difficulties. At present, the two policy tools are being implemented in an orderly manner and have achieved initial results.

While supporting the steady growth of the real economy, many significant progresses have been made in preventing and defusing major financial risks in the first half of the year. The risk disposal of Baoshang Bank has been basically completed, and Mengshang Bank has been established and opened. The risk disposal of the "Huaxin Group" has been basically completed. The financial restructuring and capital increase and share expansion plans of Jinzhou Bank, Harbin Bank and Gansu Bank have been smoothly implemented. The reform and restructuring of Hengfeng Bank has been basically completed. We will strengthen overall coordination and support the China Banking and Insurance Regulatory Commission and the China Securities Regulatory Commission to decisively take over the nine core financial institutions under the "Minsheng Group", which are currently progressing smoothly. The bankruptcy reorganization of Founder Group is progressing smoothly. We will support commercial banks to supplement capital by issuing perpetual bonds and other capital instruments, and improve the corporate governance of small and medium-sized banks in combination with financial risk disposal. With a long-term perspective and preparedness in advance, we will support banks to increase the disposal of non-performing loans and provisioning, and enhance the sustainability of financial support for the real economy.

Monetary policy focuses on implementing the measures that have been introduced

Regarding the key tasks to be carried out in the second half of the year, the meeting mainly proposed five major goals, covering monetary policy, financial risk prevention, financial industry opening up, financial system and mechanism reform, financial management and financial services.

In terms of monetary policy, the meeting continued the tone set by the recent meeting of the Political Bureau of the Central Committee. The meeting required that monetary policy should be more flexible, moderate and precisely guided, and that the various policies that have been issued to stabilize enterprises and protect employment should be implemented and effective. The growth rate of broad money supply and social financing scale should be significantly higher than that of last year, while paying attention to grasping the rhythm, optimizing the structure, and promoting a substantial increase in inclusive small and micro enterprise loans and medium- and long-term loans in the manufacturing industry. The 1 trillion yuan re-loan and re-discount policy and two direct tools should be implemented well, and they should be extended as much as possible, so as to include as many small and micro enterprises affected by the epidemic as possible in the support scope. At the same time, adhere to the market principle, respect the autonomous operation rights of commercial banks, support policies without rigid requirements, and eliminate the concerns and worries of small and micro enterprises.

Wang Tao, chief China economist at UBS Investment Bank, said that in addition to continuing the previous statement of "more flexible and moderate", monetary policy also emphasized "precise guidance", which indicates that the possibility or intensity of further monetary policy easing may be reduced, and the central bank is still more inclined to use targeted tools to support the real economy.

"It is expected that the central bank will still implement targeted reserve requirement ratio cuts this year (the scale is equivalent to a 25 basis point overall reserve requirement ratio cut), and at the same time lower the MLF rate by up to 5-10 basis points to promote the reduction of the average financing cost of the real economy. At the same time, the overall credit growth rate is expected to rebound further to 13.8% in the second half of the year, and may fall back thereafter," said Wang Tao.

Although the official stance on monetary policy has tightened marginally recently, in fact, the monetary policy adjustment preceded the policy stance. Mingming, deputy director of CITIC Securities Research Institute, believes that judging from the recent liquidity operations of the central bank, the current funding situation has basically been adjusted in place. In addition, there is still the goal of pushing the comprehensive financing cost down significantly, and the medium-term monetary policy will still focus on stability.

As for how to promote the substantial growth of inclusive small and micro enterprise loans and medium- and long-term manufacturing loans? Wang Yifeng, chief banking analyst at Everbright Securities, believes that in order to achieve the growth of manufacturing loans and small and medium-sized enterprise loans and promote the "integration effect of monetary policy with employment, industry, and regional policies", it is expected that the regulator will set indicators such as the growth of manufacturing credit loans and medium- and long-term loans, and credit assessment of small and micro enterprises.

The three-year battle to prevent and resolve financial risks was concluded as scheduled

In the first half of the year, we have made remarkable achievements in preventing and defusing financial risks. The meeting pointed out that in the second half of the year, we must continue to fight the three-year battle to prevent and defuse major financial risks. We will continue to push for the three-year battle to be concluded as scheduled, and move to regular risk prevention and control and risk disposal. We will speed up the process of filling the gaps in the financial risk disposal system and improve the emergency disposal mechanism for major financial risks. We will implement the accountability requirements of the Financial Committee of the State Council, implement accountability for the formation and disposal of major financial risks, and further consolidate the responsibilities of all parties. We will strengthen the protection of financial consumer rights and interests. We will strengthen risk monitoring and assessment, and pay close attention to marginal changes in financial risks. We will give full play to the role of the deposit insurance system.

In terms of financial system and mechanism reform, the meeting proposed to support local governments to resolve regional financial risks, do what they can, and deepen the market-oriented reform of rural financial institutions. In promoting reform, it is necessary to maintain the overall stability of the legal person status of county-level rural financial institutions and maintain the integrity of my country's financial organization system. Promote capital replenishment of small and medium-sized banks, and focus on increasing support for small and medium-sized banks to issue capital replenishment bonds. Deepen the reform of development-oriented policy financial institutions. Continue to take the lead in promoting key legislation in the financial industry and deepen the "delegation, regulation and service" reform.

On the 3rd, the China Wealth Management 50 Forum (CWM50) released a special report titled "Deepening the Reform of Small and Medium-sized Banks and Improving the Quality and Efficiency of Serving Small and Micro Enterprises - The Main Problems and Countermeasures Faced by Small and Medium-sized Banks at Present", which was led by Academic Chief Advisor Wu Xiaoling. The report pointed out that the survey found that the main difficulties currently faced by small and medium-sized banks in the field of small and micro financial services include: the narrowing of interest rate spreads of small and medium-sized banks, the squeeze on profit margins, the deterioration of cash flow conditions, and the increase in operating risks; the problem of insufficient capital in small and medium-sized banks is relatively common, and capital replenishment is difficult. It is recommended to improve the approval efficiency of capital replenishment tools for small and medium-sized banks, innovate capital replenishment tools, and broaden the scope of bank shareholders. At the same time, it is also necessary to combine capital replenishment with clarifying the reasons for capital shortage to prevent banks from blindly filling capital holes and causing adverse selection. Promote the reform of small and medium-sized banks, improve the governance system, improve the level of internal control, and enhance risk control and profitability. Take advantage of the opportunity of government capital injection to supplement the core capital of banks to promote the reform of the governance system of small and medium-sized banks.

In addition, the meeting also stressed the need to unswervingly promote the steady and orderly opening up of the financial industry, and continue to do a good job in financial management and financial services. Promote the full implementation of the pre-entry national treatment plus negative list system. Actively and steadily promote the internationalization of the RMB and the convertibility of capital items, and unify the foreign exchange management policy for the opening up of the bond market. Promote the construction of a modern central bank accounting and financial system. Steadily and prudently promote the pilot of unified domestic and foreign currency bank accounts. Accelerate the improvement of the financial technology regulatory framework. Actively and steadily promote the research and development of legal digital currency, etc.

Source: Securities Times