Li Keqiang sends a strong note: financial stability has a bearing on the overall situation

At a time when international market turmoil, domestic economic operations encountered new pressures and financial market volatility intensified, Chinese government executives issued strong notes that stabilized market expectations. Li Keqiang, member of the Standing Committee of the Political Bureau of the CPC Central Committee and Premier of the State Council, recently hosted a special meeting of the State Council, clearly proposing "continuing to implement a proactive fiscal policy and a prudent monetary policy. On the basis of adhering to the interval control, we will see the micro-intelligence, flexible policy, and more precise orientation control. The camera regulates the downward pressure on the economy, stimulates market vitality with more powerful reforms and innovations, more effectively implements and consolidates the momentum of consolidation, stabilizes market expectations, and makes policy reserves to ensure the completion of the main objectives of this year's economic and social development."

Li Keqiang also emphasized that "financial stability is related to the overall situation of the economy." Industry insiders said that the steady exchange rate, stable capital market and stable liquidity released by the State Council special session and the guarantee of the bottom line of systemic risk undoubtedly released a strong policy signal. In the future, some of the policies in the reserve will be introduced one after another.

Exchange rate reaffirms that the renminbi does not have a sustained
At the State Council's special meeting, the Chinese government's high-level officials clearly released the determination to stabilize the exchange rate, which caused market concern.

Li Keqiang pointed out that the recent improvement of the RMB exchange rate middle price quotation mechanism is a reasonable measure to comply with the trend of the international financial market. However, the RMB exchange rate has not been continuously depreciated and can be maintained at a reasonable and balanced level.

On August 11, the People's Bank of China announced that it would improve the quotation mechanism for the central parity of the RMB against the US dollar. This move is an important step in the market-oriented reform of the RMB middle price formation mechanism. However, the sharp correction of the exchange rate in a short period of time has also triggered market shocks, and the market depreciation is expected to heat up rapidly. Yi Gang, deputy governor of the People's Bank of China and director of the State Administration of Foreign Exchange, has clearly responded. The official opinion that the renminbi depreciation of 10% to promote exports is completely "nonsense" and completely unfounded.

The spokesman of the Ministry of Commerce also pointed out that China's economic, foreign trade, and two-way investment growth rate is still one of the highest in the world's major economies. The economic fundamentals determine that the value center of the RMB exchange rate is basically stable.

On August 28, the central parity of the RMB against the US dollar was reported at 6.3986, up 99 basis points from the previous trading day, up 0.15%, the biggest one-day gain in half a year, and also ended the previous three consecutive days of decline.

Insiders pointed out that the timing of the reform of the exchange rate middle price quotation mechanism coincides with the fact that when China's domestic economy is under downward pressure and the capital market is turbulent, if the depreciation is actively devalued, the depreciation expectation will be strengthened, and capital flight will be triggered, thereby further promoting the devaluation. A vicious circle will form, which may bring new instability factors. It may be considered to gradually expand the scope of market makers and participants in the foreign exchange market and further enrich the product structure of the foreign exchange market. At the same time, as far as possible, the exchange rate will remain relatively weak, which will help promote the internationalization of the RMB.

Stock market capital market "maintaining stability" to a new height
What the marketers are concerned about is the signal about the capital market released at the special session. Premier Li Keqiang stressed that it is necessary to maintain a stable operation of the financial market. Accelerate the construction of relevant systems and foster a capital market that is open, transparent, long-term, stable and healthy. Strengthen and improve risk management and maintain the bottom line of regional systemic risks.

“The Prime Minister’s speech has added important weight to the stability of the capital market.” Li Dazhao, director of the Institute of Securities Research, told reporters that the development of an open, transparent, long-term, stable and healthy capital market has released a positive signal to the market. Reduce the market's large fluctuations and avoid big ups and downs. In his view, the sharp decline in A shares from 5178 to 2850 has come to an end. Li Dazhao said that the stability of the capital market has played an important role in China's economic stability and reform. In the first half of this year, the total amount of A-share financing ranked first in the world, which played a supporting role in the real economy.

In the recent policy of centralized publication, pensions have attracted attention in the market, and have been widely interpreted as a measure to stabilize the market at a critical moment. On August 23, the State Council issued the "Administrative Measures for Basic Endowment Insurance Funds". At the policy briefing held by the Information Office of the State Council on August 28, Yu Weiping, Vice Minister of Finance, said that the Chinese government will provide investment in local social security funds. Tax preferential treatment will start the investment of local social security funds as soon as possible. The deputy director of the Ministry of Human and Social Affairs, Yu Wei, said that after roughly calculating the pension reserve, the amount of funds that could be used for investment was about 2 trillion yuan.

In the process of gradually digging into the market, the increase in industrial capital has frequently occurred. According to WIND statistics, from August 24 to August 28, in the secondary market, 354 companies received significant shareholder holdings. According to the calculation of the share change deadline, since July this year, a total of 1,144 listed companies in the two cities have gained important shareholder holdings, with an increase of 95.9 billion yuan.

Interest rates remain reasonably liquid
When talking about the topic of financial stability, Li Keqiang also pointed out that it is necessary to continue to promote financial system reform, maintain a reasonable and sufficient liquidity, and enhance the ability to serve the real economy. Maintain a stable operation of the financial market.

On August 25, the central bank announced that it would cut the benchmark interest rates for financial institutions' RMB loans and deposits to further reduce corporate financing costs. Since November 2014, this is the fifth time the central bank has cut interest rates and the fourth RRR cut. This is the second time the central bank has “double down” this year.

Due to the reduction of foreign exchange holdings and the improvement of the quotation mechanism of RMB against the major currencies, the central bank has an important impact on the liquidity of the foreign currency in the financial system. In addition to the interest rate cuts and RRR cuts, the central bank has recently passed the continuous heavy volume reverse repo and MLF, SLO. In other ways to supplement the liquidity of the market, from the perspective of interbank market interest rates, the previous liquidity tension has eased. However, industry insiders pointed out that compared with the monetary policy tools such as the Medium Term Lending Facility (MLF), Mortgage Supplementary Loan (PSL), and the Standing Loan Facility (SLF), the traditional policy instruments such as interest rates and deposit reserve ratios still exist. A huge space to play a role.

Huang Wentao, chief macro analyst of CITIC Jiantou, said that after the central bank’s double-dip, the Ministry of Finance overweighted the local debt, and the fiscal and monetary double easing continued. Local bond issuance will not come at the expense of a substantial increase in interest rates. Therefore, the central bank needs to be relaxed, and the RRR and rate cuts are all right. The RRR cut provides the bank's credit expansion space, while the rate cut directly reduces the bank's liability cost. The central bank still has at least two RRR cuts in the second half of the year to hedge the pressure on interest rate debt supply.

However, many experts also said that the ability to enhance the financial services economy needs to further divert the monetary policy transmission mechanism that is not very smooth. Yang Chi, head of the strategy department of the Development Research Department of Hua Xia Bank, told reporters that from the perspective of the effects of the previous regulation, the marginal utility of monetary policy is gradually decreasing, and it is impossible to completely pin the steady growth on the policy of cutting interest rates and reducing the RRR. At present, it is imperative to rationalize the transmission mechanism of monetary policy, create a favorable policy environment for commercial banks that are the most important market players in monetary policy transmission, and improve the lending capacity and willingness to lend of commercial banks.

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