SCIO briefing on China's current economic performance
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E-mail China.org.cn, July 28, 2017
Nikkei:
Market interest rates and mortgage rates both increased in the first half of this year. How will the increase impact the performance of the Chinese economy in the second half of this year?
Wang Zhijun:
China's prudent monetary policy and proactive fiscal policy, especially the supply-side structural reforms, have enabled the national economy to maintain stable and sound growth in the first half of this year. As Mr. Yang said just now, China will continue such policies in the second half of this year.
To cope with any possible impact from rate moves, we will maintain a prudent monetary policy, emphasize preemptive adjustment and fine tuning, and ensure moderate credit growth and stable liquidity so that interest rates remain at a reasonable level.
I believe China is able to sustain sound economic growth by using monetary policy instruments to offset the impact of interest rate moves.
Financial Times:
As has just been mentioned, it is very important to curb systematic risk. Could you please explain what kind of risk this refers to? In what circumstances would the highest probability appear? Which sector, for instance, will face such risk? What does systematic risk mean exactly? Thank you.
Yang Weimin:
Systematic risk refers to the risk that will affect the overall economy and the entire society. Definitely, it can be caused by small risks of different sectors and aspects rather than one sector alone. The subprime crisis, for example, didn't look like systematic risk, but it finally resulted in one, as it triggered a financial crisis in the United States and touched off the global financial crisis.
What we mean by guarding against systematic risk is to prevent those small risk points of different sectors, including interbank business, local governmental debt, and debt defaults of some State-owned enterprises (SOE) and a high leverage ratio. We have to identify, find and deal with those risks as soon as possible. By handle them in this way we can prevent small risks from becoming huge systematic risk in the end and doing more serious harm to Chinese economy. So, we balance the relationship between stable growth and risk prevention even at the cost of sacrificing something in other aspects now.
In the second half of this year, we will work on deleveraging, which is the source of risks. The direction of deleveraging is unchanged. Definitely, deleveraging will undergo a lengthy process with priorities, as the leverage ratio of different industries and sectors varies. It was stressed at the National Financial Work Conference that deleveraging of SOEs should have top priority. If SOE deleveraging is achieved, the leverage aspect of the entire enterprise sector will go down and leverage of the whole national economy will decline as well, which is how to prevent dangers at source. We will not maintain growth at the mercy of a rebounding leverage ratio. The economy of the first half year continues to be stable and is getting better. Meanwhile, the trend that the macro leverage ratio was rising too rapidly in previous years is now under control to some extent. That means both deleveraging and stable growth can be achieved. We are able to maintain a stable economy, and to curb the leverage ratio to some extent as well. Thank you.
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