The Chinese economy will demonstrate strong resilience against the global economic shock triggered by the COVID-19 pandemic, and its financial system is sturdy enough to fend off risks that emerge, senior Chinese officials said.
Liu Guoqiang, vice governor of the People's Bank of China (PBOC), the central bank, made the remarks at a press conference. Liu noted the widespread COVID-19 outbreak will deliver a huge blow to the world economy and thus, a short-term shock to China.
Though it remains uncertain how severe the damage will be global pressures are being felt in areas such as industrial chains, trade and market expectations, he said.
Liu said compared with pre-outbreak levels, China's first-quarter data would certainly look less than stellar, but he is confident that there will be a marked improvement in the March performance compared with February.
The vice governor said it is inevitable to see risks arising, but overall China's banking system is capable of absorbing losses and warding off the risks.
As of the end of 2019, the non-performing loan ratio at Chinese commercial banks stood at 1.86 per cent, far below the regulatory ceiling of 5 per cent. Meanwhile, the provision coverage ratio, a measure of funds set aside to cover bad loans, was 186.08 per cent, according to Liu.
Zhou Liang, vice chairman of the China Banking and Insurance Regulatory Commission, told the same briefing that banking authorities will continue to clear non-performing loans and seek more ways to replenish capital for banks.
In terms of government debt, the debt risk level is generally under control, Vice Finance Minister Xu Hongcai said, citing the fact that by the end of last year, China's total government debt ratio came in at 38.5 per cent, far below the alert level of 60 per cent set by the European Union, as well as the levels of major market economies and emerging economies.
Policy boost
Apart from its strong economic resilience, China still has ample policy space and tools to stabilise growth, said Liu, pledging that prudent monetary policy will be pursued with more moderate flexibility, and more attention will be paid to supporting the real economy.
China's new loans have reached nearly 7 trillion yuan (about 988 billion U.S. dollars) in the first quarter of this year as part of the country's financial support to shore up the economy. This is in comparison with the 5.81 trillion yuan of new yuan-denominated loans in the same period last year.
Liu said the central bank will keep market liquidity reasonably sufficient to meet practical demands and avoid either a cash shortage or soaring inflation, and that the increase in M2 money supply and aggregate financing should match or be slightly higher than the nominal GDP growth.
According to arrangements of a recent meeting of the Political Bureau of the Communist Party of China Central Committee, a package of macro policies will be introduced, including appropriately raising the fiscal deficit ratio, issuing special treasury bonds, increasing the scale of special bonds for local governments and guiding the interest rate to decline in the loan market.
In its latest move, the PBOC announced it would cut the reserve requirement ratio for small and medium-sized banks by 100 basis points, which is expected to unleash around 400 billion yuan of long-term capital into the market.
To lower lending costs, the PBOC also cut the reverse repo rate by 20 basis points when pumping liquidity into the market through open market operations earlier this week, as adjustments in monetary market rates are now better reflected in lending rates thanks to the reform of the loan prime rate. But as for deposit rates, Liu said that it would require careful consideration to decide its adjustment, noting that a balance should be maintained between economic growth, inflation and interest margins.
Xu also told the briefing that as part of the more proactive fiscal policies, efforts will be made to expedite the issuance and utilisation of local government special bonds to support effective investment, with priority to be given to regions with major projects and low risks.
As of the end of March, the value of local government special bonds issued this year ttotalled1.08 trillion yuan, surging 63 per cent year on year.
