Monetary policy, macro-prudential policy key to containing financial risks
Containing financial risks is crucial to ensuring victory in the "three tough battles" - curbing major risks, eradicating poverty and controlling pollution. To forestall systemic financial risks, a framework of regulation underpinned by monetary policy and macro-prudential policy is necessary, a central bank official said on Saturday.
"Currency policy alone can't help maintain financial stability. And to contain financial risks and maintain financial stability, macro-prudential policy is also needed," Yi Gang, vice governor of People's Bank of China, the country's central bank, said at a meeting in Beijing.
Macro-prudential policy is an approach to financial regulation aimed at reducing systemic risks. It takes into consideration aspects such as asset quality and capital adequacy ratio when evaluating the financial system to prevent systemic risks and improve counter-cyclical adjustment.
Both the 19th National Congress of the Communist Party of China and the Central Economic Work Conference listed containing financial risks first among the "three tough battles."
Growth of China's leverage ratio slowed remarkably in the first three quarters. Primary calculation showed the increase was 9.6 percentage points lower than the average growth rate from 2012 to 2016, Yi said.
The growth rate of M2, a broad measure of money supply that covers cash in circulation and all deposits, also slowed this year, with the figure at 9.1 percent in November.
"This figure is almost the lowest in history. But aggregate financing to the real economy increased 12.5 percent and outstanding yuan loans grew 13.3 percent year-on-year in the same month, indicating strong financial support to the real economy," he explained.
The task of dealing with overall leverage ratio should be a priority in preventing and controlling risks, Yi said. "We will stick to stable and neutral monetary policy. More emphasis will be placed on deleveraging of state-owned enterprises and addressing both symptoms and root causes of implicit government debt," he said.
The Ministry of Finance said on Friday that it will urge local governments to increase efforts in preventing local debt irregularities, while pushing for reform in the management of local government debt quotas and government special bonds.
At the forum, Yi also stressed cracking down on financial irregularities and tightening supervision.
China uncovered irregular local government debts worth over 6.4 billion yuan ($972 million) in the third quarter of this year, according to the National Audit Office.
As for exchange rates, Yi said that market demand and supply of Chinese currency is balanced and the central bank didn't interfere.
The yuan saw two-way volatility this year. Overall, the yuan appreciated around 5 percent against the U.S. dollar, but maintained basic stability against a basket of currencies, he said.