The week in review: Central bank leaves LPR unchanged, rejigs monetary policy committee, Sino-US dialogue reveals ‘significant disagreements’
In this round-up, China leaves the benchmark lending rates steady yet again, the central bank’s monetary policy committee gets a reshuffle, and senior foreign policy officials from Beijing and Washington fail to agree on key issues at a high-stakes meeting.
China has left the loan prime rate (LPR), the benchmark lending rate, unchanged for the 11th consecutive month in March. One year LPR remained at 3.85%, and the five year and above rate at 4.65%, the People’s Bank of China said on Monday morning.
China has rejigged the central bank monetary policy committee, shows a Saturday notice from the State Council.
Ma Jun, director of the Center for Finance and Development at Tsinghua National Institute of Financial Research, and Liu Wei, president of Renmin University of China, will no longer serve in the committee. They will be replaced by Cai Fang, chief expert at the National Institute for Global Strategy of the Chinese Academy of Social Sciences, and Wang Yiming, who is the vice-chairman at the China Center for International Economic Exchanges.
The 14 member committee is chaired by central bank governor Yi Gang. The heads of the China Banking and Insurance Regulatory Commission, China Securities Regulatory Commission, National Bureau of Statistics and the State Administration of Foreign Exchange also sit in the committee.
The chairman of the CSRC, Yi Huiman, spoke at the China Development Forum in Beijing over the weekend, addressing key issues such as the recent volatility in China’s stock market, the registration-based IPO system, and foreign capital inflows.
Yi said it is “normal” to see stock market volatility and the risk is controllable, as long as there is no excessive leverage. A registration-based system for domestic IPOs does not mean the listing requirements have been loosened, he said. Yi also criticised the fact that some economists and analysts are paying too much attention to factors such as US Treasury yields and inflation rates in foreign markets, rather than movements in domestic benchmarks such as the LPR, Shibor and China government bond yields, as well as domestic inflation.
Yi said that while China is happy to see “normal” cross-border capital flows, the “big inflows and outflows of foreign hot money” must be controlled as it would be “detrimental to the healthy development of any markets”.
Speaking at the same event, central bank governor Yi Gang said that China’s macro leverage is “basically stable” and that it has “plenty of room” for adjustment in its monetary policy as the current policy has been kept within “a normal range”. Monetary policy needs to “strike a balance between supporting economic growth and preventing risks”, Yi added.
The country is working on the use of different tools to incentivise its financial institutions to provide climate-related funding support, Yi said. The financial system must be fully used for China to reach peak carbon dioxide emissions by 2030 and become carbon neutral by 2060, as the capital needs could be in the hundreds of trillions of renminbi and cannot be covered by government funding alone, he said. Yi added that Beijing has nearly finished revising its green projects catalogue, from which fossil fuel projects will be removed.
Credit Suisse plans to further grow its China presence, chief executive Thomas Gottstein reportedly said during a penal discussion at the same China Development Forum. “We are planning to more than triple our presence in term of headcount in China over the next three years and look forward to strengthening our position,” Gottstein said.
In August last year, Credit Suisse said it would double its China headcount within five years and increase revenues from the country by 100%.
The CSRC has revised rules on major shareholders of Chinese securities companies, lowering the requirements.
Any shareholder with at least 5% equity interest in a securities firm is now considered a major shareholder, instead of 25% previously or 5% only if it was the single largest shareholder. The major shareholders are no longer required to have “sustained profitability” over the past three consecutive years, with the threshold on their minimum assets lowered to Rmb50m from Rmb200m.
The CBIRC has removed the foreign ownership cap of 51% of Chinese life insurance companies, in the latest step since 2019 to open up the insurance sector. The revision at the end of last week falls in line with a previous document from the regulator allowing for wholly foreign-owned lifers from January 2020.
The new rules stated that in addition to foreign insurance companies, foreign insurance groups and other financial institutions can also invest in a Chinese insurer, also in line with previous relaxation measures. However, the regulator added a new requirement for national security reviews on foreign investments in insurance firms that “affect or could affect national security”.
New domestic bond issuance totalled Rmb3.4tr in February, latest data from the PBoC showed. Corporate bond sales stood at Rmb613.4bn, financial bonds Rmb484.2bn, and those by central and local governments at Rmb428.7bn.
The size of the Chinese bond market reached Rmb118.4tr by the end of last month.
The PBoC will issue Rmb5bn of central bank bills in Hong Kong on Thursday. The bills will have a tenor of six months.
China and the US have agreed to continue high-level strategic dialogues, the Chinese Ministry of Foreign Affairs said in a statement on its website, following a meeting in Alaska between senior government officials from the two countries at the end of last week.
Last week’s discussion is “beneficial” and helps China and the US to better understand each other, but the two countries still have “significant disagreements” on certain issues, said Yang Jiechi, a director in the Central Foreign Affairs Commission and a former Chinese foreign minister, in a media briefing after the meetings, according to a separate notice by the foreign ministry.
According to the foreign ministry, the US reiterated its ‘one China’ stance on Taiwan-related issues at the meeting. The two countries have agreed to cooperate in areas related to climate change and discussed potential revisions in the current travelling and visa policies to normalise travels between the two countries. Issues related to Hong Kong, Tibet and Xinjiang were also discussed.
Last week’s meeting was the first high level in-person meeting after Joe Biden took over as US president. In addition to Yang, Chinese foreign minister and state councillor Wang Yi, US secretary of state Antony Blinken, and Jake Sullivan, national security adviser, also attended the meeting.
Chinese banks recorded a foreign exchange sales and settlements surplus of $28bn in February, according to the Safe.
The central bank has handed out Rmb526m of penalties to 537 Chinese institutions for anti-money laundering related offences in 2020, according to the PBoC and the Supreme People’s Procuratorate.