On October 15, 2017, Zhou Xiaochuan, Governor of the People's Bank of China, delivered a speech on China's economic prospects at the G30 International Banking Symposium in Washington during the International Monetary Fund/World Bank Annual Meeting. The main contents are as follows:
In the past few years, China’s economic growth rate has continued to slow down. Since then, the rate of increase above 10% has dropped to around 8% in 2012 and continues to fall to 6.7% in 2016. butThe momentum of economic growth has picked up this year. The GDP growth rate reached 6.9% in the first half of the year and it is expected to reach 7% in the second half of the year.The driving force for economic growth mainly comes from the rapid growth of household sector consumption. From January to August, the total retail sales of consumer goods increased by 10.4% year-on-year. Consumers gradually shifted from traditional goods to services. As a result, the development of the service industry accelerated, and the added value of the tertiary industry accounted for GDP. The proportion rose from about 40% 15 years ago to the current 55%. Economic growth has contributed to the overall stability of employment, and the number of new urban employment from January to August is about 10 million. This is also the rate at which China’s huge population needs to maintain employment growth. At the same time, CPI increased by 1.8% year-on-year, PPI increased by 6.3%, and nominal GDP growth reached 9.5%.
From the perspective of money supply and credit data, since the beginning of this year, China has entered the deleveraging process, and the growth rate of the broad money supply M2 has continued to slow, and it is currently below 9%. The overall leverage rate began to decline.Although the magnitude is not large, the trend has already taken shape. After the financial crisis, China began to implement proactive fiscal and monetary policies to cope with the crisis. Therefore, China’s debt-to-GDP ratio has risen sharply in the two years after 2009, but this is worth it because the Chinese economy will soon recover from the crisis. Now, China needs to lower its leverage.
Thanks to the improvement of the external environment, China’s imports and exports have performed well since the beginning of this year, with a merchandise trade surplus of 400 billion U.S. dollars, which is 20% lower than the same period of last year. However, imports, especially the service industry, have seen rapid growth, and the current account surplus is expected to increase this year. The proportion of GDP will fall to 1.2%. From an international comparison, China's international balance of payments is less imbalanced.
About deleveraging.China's overall macro leverage is higher. In terms of sub-sectors, the ratio of government debt to GDP is not high; the ratio of residents' debt to GDP is still low, but the growth is rapid; the main problem is that corporate sector debt has a high proportion of GDP. Thanks to the low interest rate environment, the current debt service rate is still relatively reasonable. Many people may ask why companies have such high leverage, and why financial institutions, especially commercial banks, are willing to provide so many loans to companies. One of the reasons, as pointed out by many economists, is that Chinese local governments have borrowed money from various financing platforms and formed more debts. This is statistically reflected as corporate sector debt, which can lead to overestimation of corporate sector debt. If this part is counted as government debt, corporate sector debt will fall sharply and government debt will rise accordingly. This kind of debt structure is also more balanced. Therefore, looking at the leverage ratio of China depends not only on the problems of state-owned enterprises and other corporate sector debt and bank credit, but also on local government debt issues, which are related to the process of promoting urbanization. The IMF’s fourth-term consultative team also proposed to us that it should seriously study the inter-governmental financial relations and reform the division of responsibilities between the central government and local governments.
On excess capacity and urbanization.China has begun to reduce excess capacity in the steel and cement industries. There are two main reasons for the overcapacity in these industries. One is the large-scale infrastructure construction, and the second is the rapid urbanization process. Both of these require a lot of steel and cement. China's infrastructure has been greatly improved, but the process of urbanization is still in progress. From the perspective of the registered hukou population, the current urbanization rate is only about 40%; however, according to the results of the census survey, the urbanization rate is about 50%; if the sample analysis method is used to count the number of people living in the town for six months, then The urbanization rate is 57%. This means that a large number of farmers are still migrating to cities. Although these people may have found work in the cities, they have not yet settled down in the cities. Therefore, the process of urbanization in China is still in a period of rapid development, resulting in a greater demand for steel and cement. The Chinese government hopes to promote structural reform and optimization and attaches great importance to environmental protection. Therefore, it voluntarily cuts its steel and cement production capacity by 10%. At present, there have been positive results from capacity reduction and it is expected that the target can be achieved.
With regard to the transfer of comparative advantage,Many labor-intensive industries in China have now shifted to ASEAN and Southeast Asia, and more and more Chinese investors are investing in Africa to transfer some industries to Africa. Therefore, the proportion of the service industry in the Chinese economy is increasing. This is a very good phenomenon. However, there is still a problem that the service industry is not competitive enough. Although there are some advantageous industries, medical education and other industries are still relatively weak, and further efforts are still needed.
About financial stability. The national financial work conference in July this year decided to establish a Financial Stability Development Committee. In the future, it will focus on four issues. The first is the shadow bank.In fact, we started to deal with this issue two years ago. At present, we have made positive progress. Many shadow banking operations have returned to the banking sector and are included in the balance sheet of commercial banks.The second is the asset management industry.This issue is more complicated. The three supervisory agencies supervised by the China Banking Regulatory Commission, the China Securities Regulatory Commission, and China Insurance Regulatory Commission may have different regulatory requirements for the same asset management behavior. We agree with the relevant recommendations of the Financial Stability Council and should rationalize and streamline the asset management industry. Supervision.The third is Internet finance.At present, many technology companies have begun to provide financial products. Some companies have obtained licenses, but some have still provided credit and payment services and sold insurance products without any license. This may bring about competition issues and financial stability risks.Fourth, financial holding companies.We have observed that some large private companies obtain various financial service licenses through mergers and acquisitions, but they are not truly financial holding companies. There may be illegal transactions such as related party transactions between us, and we do not have corresponding regulatory policies for these cross-sector transactions.
In the future, we will further deepen reforms and gradually promote economic deleveraging. At the same time, it strengthened the coordination of financial supervision, promoted the steady and healthy development of the financial market, and maintained financial stability.
David Marsh, Chairman of the International Monetary Financial Institutions Official Forum (OMFIF) asked:Some people say that there is a "leadership vacuum" in the world. Do you think that this time is the moment when China strengthens leadership in the reform of the international currency system? In your speech, you mentioned various positive performances of the Chinese economy. This seems to provide an opportunity to promote China's claims when discussing the reform of the reserve currency system, the role of special drawing rights, and the normalization of the currency swap mechanism.
A: In recent years, with the rapid development of China's economy, China has begun to play a role in international economic governance, including participation in the formulation of policies such as the reform of the reserve currency system and trade and financial stability. However, China still focuses on resolving domestic issues, including how to continue to promote economic development and promote regulatory reforms, so as to keep pace with global development.
I am very pleased to see that the IMF's inclusion of the RMB in the SDR currency basket is encouraging and will inspire China to further promote reform and opening up and better play the role of the RMB as a freely usable currency. Although China has more actively strengthened its cooperation with the International Monetary Fund, the Bank for International Settlements, and the Financial Stability Board and has participated in standard setting work, it still has a long way to go to play a bigger role.
Currency swaps are an unexpected product of the global financial crisis. At the beginning of the global financial crisis in 2008, due to the lack of hard currency, bank development agencies also faced difficulties. The neighboring countries proposed to sign exchange agreements with China to support the development and facilitation of regional trade. At first, it was some economies of South Korea, ASEAN and Central Asia. Later it gradually expanded to other parts of the world, such as Argentina, Ukraine and Egypt. Therefore, the currency swap mechanism can be said to be an unexpected product of the financial crisis. China supports the further development of a global safety net, which may be more effective than bilateral arrangements.
Former President Bill Rhodes of Citibank asked:Last year, you expressed concern about the increase in the ratio of China’s debt to GDP, but you feel that you are more optimistic about China’s debt problems this year. The Chinese government is currently actively taking measures to deal with the debt problem. Don't know if the above judgment is correct?
A: As for the debt issue, it should be noted that in the process of urbanization, financial transparency is not high, the government-to-government fiscal relationship needs to be streamlined, and there is a lack of explicit fiscal discipline to constrain local governments. Therefore, financial markets are pricing local government debt. There is distortion, and the pricing of loans to local government financing platforms is also distorted. This has led commercial banks and the financial sector to underestimate local government financial risks. It is believed that these problems will be gradually solved and the financial market will become more transparent and healthy. The national financial work conference held in July this year also emphasized the importance of attaching importance to government debt risks. It should also be noted that compared with private sector debt and external debt, government debt risks are relatively low. We will actively respond to related issues by advancing fiscal reforms.