SCIO briefing on maintaining financial market stability during COVID-19 epidemic

0 Comment(s)Print E-mail SCIO, March 25, 2020
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CNBC: 

My first question is about Chinese financial institutions' participation in global financing. Apart from communication, what measures are in the pipeline to stabilize global financial markets? The second question is, do you endorse the view held by some analysts that more capital will flow into the Chinese market? If so, how to respond to a stronger renminbi or offset the negative impact on the foreign trade and foreign-owned companies? Thank you!

Chen Yulu:

Recently, as the novel coronavirus spread to many parts of the world, the global financial markets have become even more turbulent. Indeed, we have noticed that the stock markets in many Western countries and emerging economies have plummeted by around 30 percent on average. This has surely triggered much concern worldwide. However, it's still too early for us to come to the conclusion that the world has already entered a financial crisis. Usually a financial crisis is marked by three characteristics: First, sustained and panic-driven cross-market fall in the international financial market; second, close-down of a spate of financial institutions, in particular those of systematic importance; third, severe destruction that the global real economy has sustained. At present, to allay the tumbling international financial market, many countries have rolled out measures. As for the effects of these measures, we have to wait and see.  

As vice chairman Li Chao indicated just now, through three channels, the turbulence of the international financial market can be transmitted to the domestic financial market: First, the pessimistic mood overseas can impact the domestic market through affected market expectations; second, the outflow of international capital can also work as a channel to exert its influence; third, the deteriorating balance sheet of some transnational corporations and foreign financial institutions can possibly have a ripple effect on the domestic market. 

However, the facts show that in face of the turbulent global financial market, China's financial market has stood the test, displaying a high amount of stability with pretty small fluctuation. Now, China's financial market maintains in overall stable operation with relatively stabilized market expectations and ample space for macro monetary policy and tools. The situation can be attributed to the following reasons: First, China's financial system has become even more stable and robust benefiting from the national campaign for forestalling and defusing major risks, supply-side structural reform in the financial sector, and the advancement of the high-level reform and opening-up in the financial sector. Second, the stable operation of the financial market after starting trading as scheduled as well as the safe and stable operation of a range of financial infrastructures has greatly boosted investors' confidence. Third, after the epidemic broke out, China introduced prudent monetary policy to flexibly and quickly respond to the changing economic situation with the financial supervision policy also in place in a timely manner. These measures have greatly propped up the real economy, especially small, medium, and micro-sized firms and private companies which have borne the brunt of the epidemic, in a targeted fashion, thus having stabilized the economy. 

Next, in the face of a turbulent global financial market, under the leadership of Financial Stability and Development Commission of the State Council, the People's Bank of China will focus on the following two aspects: First, we'll advance our work in light of the established principles and policy framework. After 70 years of high-speed development, China has become a global financial power with the largest credit market and foreign exchange reserves as well as the world second largest stock, bond, and insurance markets. Therefore, maintaining the stability of China's financial market per se is a major contribution to global financial stability. Second, we'll continue to actively participate in international coordination with regards to macro-economic policy. We'll strengthen monitoring of operations of international financial markets, deeply analyze and discover the inherent laws embedded in the current international financial turbulence, and based on China's policy experience in coping with the economic plight entailed by the epidemic, timely propose constructive suggestions on international coordination about economic policy. Meanwhile, People's Bank of China will offer international bailouts to developing countries which have suffered great setbacks during the epidemic. Thank you!  

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