Shou Xiaoli:

Thank you, Ms. Wang, for your remarks. The four speakers have made a general introduction of the reform and development of the finance sector in the past decade. For more information, please refer to the handouts with more figures and graphs we distributed here today.

Now the floor is open for questions. Please identify the media outlet you represent before raising your questions.

Reuters:

I have a question on the three policy transmission. What progress has the People's Bank of China made in recent years in improving its policy transmission mechanism? Recently, the central bank has rolled out a series of structural policy tools to cope with economic shocks from COVID and to support green development as well as tech innovation. But some are worried that the overuse of structural tools could weaken the role of aggregate tools. While relying on quantity-based tools would affect the transition to a price-based monetary policy framework. What is your view on this? Thank you.

Chen Yulu:

Thank you for your professional questions, which have also drawn much attention from many experts recently. Over the years, the PBC has followed the decisions and plans made by the Party Central Committee and the State Council, stuck to a prudent monetary policy, and adopted innovative and a variety of monetary policy tools. Meanwhile, the PBC attached importance to getting interest rates and prices to fully play a leveraging role in order to promote the forming of a positive cycle between the financial sector and the real economy. Practice proves that, over this period, there has been a significant improvement in the transmission effects of our monetary policies, which are as follows:

First, we improved the mechanism to control the money supply. As I mentioned before, we have ensured the valve on aggregate monetary supply is well controlled and maintained reasonably sufficient liquidity at the same time. The increases in M2 that you just mentioned and aggregate financing have been in general step with nominal GDP growth, facilitating the national economic operation to achieve a development featured with relatively high growth, low inflation, and sound employment. 

Second, in the past decade, we have gradually established a structural monetary policy toolkit that matches China's national conditions. We focused on supporting key areas and weak links in the national economic development, such as inclusive finance, green development, and sci-tech innovation. With the structural monetary tools, we effectively responded to the impact caused by COVID-19 pandemic and fully implemented the new development paradigm, pushing forward the national economy to achieve high-quality development.

Third, we gradually improved the market-based interest rate mechanism and the adjustment and transmission mechanism. We focused on reforming the loan prime rate (LPR) and established a new transmission mechanism in which the market interest rates and the PBC influence the LPR, which then influences the loan interest rates. In terms of deposits, we also established a market-based mechanism to adjust deposit rates so that the changes to deposit rates are in step with that of LPR and the government bond yields in order to push forward the formation of market-based deposit rates.

I want to point out that structural monetary policy tools serve the purpose of adjusting aggregate money supply and structural adjustment as well. That means, by leveraging structural monetary tools, we could funnel more targeted support and adjust the aggregate money supply at the same time. On the one hand, in terms of making structural policy tools, the PBC followed the trend of the times, which is to build a mechanism featured with incentive compatibilities in line with the principle of consistency of objectives. The central bank will pump cash into the financial institutions that give credit supply to specific areas and industries in order to keep these financial institutions fully motivated. In this way, the credit structure will be further improved. On the other hand, structural monetary policy tools are also a way of increasing the monetary base, which will help to maintain reasonably ample liquidity in the banking system and the steady growth of credit supply.

The PBC has applied structural monetary policy tools under the aggregate framework and made relevant adjustments to match the focuses of economic development at different stages, which means keeping the number and scale of structural monetary policy tools we adopted at an appropriate level and coordinating them with policy tools used to adjust the monetary aggregate. The market may also have noticed that the interest rates of structural monetary policy tools bear no big difference from that of the market. Therefore, such tools will not have a big impact on market-based interest rates.

Thank you.