2024.10.18

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Introduction: The continuous rollout of a package of incremental policies, combined with the sustained effectiveness of existing policies, will further solidify the foundation for China's economy to sustain its upward trajectory and ensure steady and long-term progress.

For China's capital market, the day was another one worth recording. On this day, the three major indices opened slightly lower. During the session, the People's Bank of China announced the official launch of the Swap Facility (SF) operation, with stock buybacks,增持, and re-lending also being implemented simultaneously; subsequently, a series of major policy announcements were made from the Financial Street Forum. As numerous positive news were released, the three major indices in the A-share market accelerated their rise. By the close, all three major indices had closed higher, with the Shanghai Composite Index up by 0.78%, the Shenzhen Component Index up by 1.00%, and the ChiNext Index up by 1.24%. The A-share market saw total turnover exceeding 1 trillion yuan for the day, marking a new high since October 27th.

On the date, the Financial Street Forum Annual Conference officially kicked off in Beijing's Financial Street. Pan Gongsheng, Governor of the People's Bank of China, Li Yunzeng, Director of the China Banking and Insurance Regulatory Commission, Wu Qing, Chairman of the China Securities Regulatory Commission, and Zhu Hexin, Deputy Governor of the People's Bank of China and Director of the State Administration of Foreign Exchange, attended and delivered keynote speeches, addressing market concerns on hot topics such as China's economy, financial openness, real estate, and capital markets.

Implementation of two monetary policy tools to support the capital market

Two supportive capital market instruments have been implemented, becoming a major highlight of the day's meeting. This indicates that a significant influx of additional funds into the stock market is imminent. Pan Gongsheng stated that the two financial instruments supporting the stable development of the capital market have seen the People's Bank of China, the China Securities Regulatory Commission, and the Financial Regulatory Authority form a working task force. The convenience of mutual exchange between securities, funds, and insurance companies has begun accepting applications from financial institutions, and the policy documents for special re-lending for stock buybacks and增持 have been released and implemented today. Wu Qing announced that applications for mutual exchange convenience from several securities and fund companies have been approved by the central bank.

In fact, the market had already anticipated these two monetary policy tools that support the capital market. However, there are still many questions surrounding this. For example, how exactly will the swap facility be implemented? How much incremental funding can it bring to the market? What is the willingness of institutions to use it? It is understood that currently, there are securities and fund companies that are approved to participate in the swap facility operations, with the initial application quota exceeding 100 billion yuan. As of today, the People's Bank of China will officially start the operations based on the needs of participating institutions, supporting the stable development of the capital market.

It is noteworthy that the billion-yuan quota applied for by institutions is essentially a central bank credit, representing potential incremental funds. These institutions do not use up the quota in one go; instead, they will continuously bring incremental funds to the capital market. "These two tools are designed entirely based on market principles and have successful international precedents. Among them, the swap convenience among securities, funds, and insurance companies does not involve the central bank directly providing financial support to the market, nor does it expand the central bank's monetary supply and the release of base money; the central bank's stock repurchase and增持再贷款 funds are specifically targeted, and the prohibition against credit funds illegally entering the stock market remains a red line in financial regulation. These two tools reflect the central bank's expansion and new exploration of its financial stability functions. The central bank will cooperate with the China Securities Regulatory Commission to gradually refine these tools in practice and explore regular institutional arrangements," emphasized Pan Gongsheng.

"We will also actively cooperate with the People's Bank of China to ensure the implementation of the policy tools for stock buyback,增持, and re-lending, which will introduce incremental funds into the stock market," said Wu Qing. The initial quota for stock buyback,增持, and re-lending is 10 billion yuan, with an annual interest rate of 3.2%, and a term of 3 years, which can be extended as needed. The stock buyback,增持, and re-lending policy applies to listed companies of different ownership structures. The National Development Bank, policy banks, state-owned commercial banks, China Post Savings Bank, and joint-stock commercial banks, among other 18 national financial institutions, will provide loans in accordance with the policy to support listed companies' stock buybacks and增持.

First Financial News has learned that the interest rate on loans issued by financial institutions should generally not exceed .%. As long as the dividend yield of listed companies is higher than .%, it will be profitable for listed companies and their major shareholders to use loans to repurchase and increase their holdings of shares, which is expected to significantly stimulate their enthusiasm for repurchases and增持. The central bank emphasizes that loan funds should be "dedicated and operated in a closed loop," and credit funds outside of exemptions are strictly prohibited from flowing into the stock market, indicating that risk prevention is also an important consideration for the central bank.

Higher standards, greater efforts in opening up to the outside world

Opening up is a distinctive feature of China's modernization and a significant driving force for the reform and development of the financial industry. Foreign capital is an important participant and builder in China's capital market. Discussions on financial openness previously often focused on market access; in recent years, more attention has been directed towards institutional construction and specific financial sectors. At this forum, Li Yunzhe announced new measures for further opening up: "We will create a market-oriented, rule-of-law-based, and international business environment with higher standards, greater efforts, and more practical measures, and continue to advance high-level financial openness."

Since the second half of this year, with the improvement of internal and external environments, China's foreign exchange market has gradually stabilized and improved, and the exchange rate of the RMB against the US dollar has stabilized and rebounded. "Foreign direct investment has improved, the enthusiasm of foreign investors to allocate RMB assets has increased, and enterprises' overseas investment activities have become more stable and orderly," said Zhu Hexin. Pan Gongsheng stated that efforts will be made to steadily advance the institutional opening of the financial services sector and financial markets, expand the connectivity of domestic and international financial markets, and promote the facilitation of trade and investment. The internationalization of the RMB will be advanced steadily and solidly, based on market-driven forces and independent choices. Active participation in global economic and financial governance and cooperation will be pursued to promote balanced and sustainable development of China and the global economy.

Wu Qing stated that the CSRC will unswervingly continue to promote comprehensive institutional opening in the market, institutions, and products, deepen the interconnection between domestic and overseas markets, broaden channels for overseas listings, and encourage and support more foreign institutions to invest and operate in China. "We will further enhance the stability, transparency, and predictability of policies, striving to make various types of capital 'willing to come, stay, and develop well'." Li Yunze revealed that the Financial Regulatory Authority has officially approved the establishment of a property insurance company in Beijing by the French Paris Insurance Group jointly with the German Volkswagen Financial Services Overseas Company, and the establishment of an insurance asset management company in Beijing by the American Prudential Insurance Company. He emphasized that the Financial Regulatory Authority will continue to support the expansion of financial industry opening in Beijing, contributing more financial strength to the high-quality development of the capital's economy and society.

The role of macroeconomic policies shifts to equal emphasis on consumption and investment

Around the National Day, a series of financial policy combinations have already been implemented. However, from the perspective of financial data, both the total amount and structure of monthly credit are showing weaker performance. Data shows that the monthly new credit is . trillion yuan, a decrease of about billion yuan year-on-year. In terms of structure, banks' reliance on bill financing remains, and the willingness of residents and enterprises to increase leverage is still weak. But at the forum, many participants expressed their determination and confidence in achieving the annual economic and social development goals, and offered suggestions to promote high-quality economic development and sustainable growth.

As mentioned by Li Yunze in his speech, we will guide financial institutions to continuously increase financial supply, continuously optimize resource allocation, accelerate the circulation of funds, and fully support the recovery and improvement of the economy. Wu Qing stated, "With the accelerated implementation of key reform tasks, the phased introduction of a series of incremental policies, and the continuous efforts of existing policies, the foundation for China's economy to continue its recovery and improvement will become more solid and stable, moving forward steadily." Pan Gongsheng expressed that we will focus on serving high-quality development as the primary task, strengthen the counter-cyclical regulation of monetary policy and macro-prudential policy, enhance the precision and effectiveness of financial support policies, create a favorable monetary and financial environment for economic stability and structural adjustment, steadily expand high-level financial opening, and promote dynamic economic balance.

In fact, China's economy has undergone profound structural adjustments and dynamic balance processes. In recent years, China has continuously promoted the transformation of its economic growth model from traditional high-speed growth to innovation-driven and quality-efficiency-oriented growth, through strategic measures such as deepening supply-side structural reforms and accelerating the construction of a new development paradigm. The proportion of added value in high-tech manufacturing has steadily increased. Data shows that the role of consumption has continued to strengthen, with the proportions of consumption, investment, and net exports among the three major demands adjusting from %, %, and % in a certain year to %, %, and % in another year.

Pan Gongsheng stated that in economic operation, it is necessary to achieve a dynamic balance in three aspects: first, the dynamic balance between economic growth rate and the quality of economic growth; second, the dynamic balance between internal and external factors in economic growth; and third, the dynamic balance between investment and consumption. To achieve a dynamic balance in the economy, several key points need to be grasped. Pan Gongsheng emphasized that the direction of macroeconomic policies should shift from a past focus more on investment to a balance between consumption and investment, with a greater emphasis on consumption. Additionally, better handling the relationship between the government and the market, scientifically grasping and balancing the boundaries between the government and the market, and enhancing the intersection and relevance of policies with market concerns. Furthermore, deepen reform and opening up, create a favorable legal economic environment, and foster a more equitable and dynamic market environment.