Three Departments Discuss Financial Support for High-Quality Economic Growth

A number of significant policies to support high-quality economic development through financial means have been released.

On the morning of September 24th, the State Council's Information Office held a press conference where the main leaders of the People's Bank of China, the General Administration of Financial Regulation, and the China Securities Regulatory Commission introduced the situation regarding financial support for high-quality economic development.

At the meeting, Governor Pan Gongsheng of the People's Bank of China announced several incremental monetary policies, including reducing the reserve requirement ratio and policy interest rates, and leading the market benchmark interest rates to decline; lowering the interest rates on existing housing loans and unifying the minimum down payment ratio for housing loans; creating new monetary policy tools to support the stable development of the stock market.

The reporter noticed at the scene that the press conference was highly concerned by domestic and foreign media, with every seat taken. The three leaders answered 13 questions raised by reporters on the spot in a span of one and a half hours, covering areas such as monetary policy adjustments, medium and long-term capital entering the market, the stable operation of large commercial banks, the coordination mechanism for real estate financing, and mergers and acquisitions of listed companies.

After the press conference, Pan Gongsheng was surrounded by reporters again and answered questions about the creation of a stabilization fund, among others. He stated: "We are studying it."

Lowering the interest rates on existing housing loans and unifying the minimum down payment ratio for housing loans

Since the beginning of this year, to support financial services for the real economy, the People's Bank of China has implemented three relatively significant monetary policy adjustments in February, May, and July.

At present, the effectiveness of monetary policy is continuously emerging. Data shows that at the end of August, the social financing scale increased by 8.1% year-on-year, and the RMB loan increased by 8.5% year-on-year, which is about 4 percentage points higher than the nominal GDP growth rate, and the financing cost is also at a historical low.

The "combination punch" of this incremental monetary policy includes: reducing the reserve requirement ratio and policy interest rates, and leading the market benchmark interest rates to decline; lowering the interest rates on existing housing loans and unifying the minimum down payment ratio for housing loans; creating new monetary policy tools to support the stable development of the stock market.

Pan Gongsheng stated that the reserve requirement ratio will be reduced by 0.5 percentage points in the near future, providing about 1 trillion yuan of long-term liquidity to the financial market; within this year, depending on the condition of market liquidity, the reserve requirement ratio may be further reduced by 0.25 to 0.5 percentage points. The policy interest rate of the central bank, namely the 7-day reverse repurchase operation interest rate, will be reduced by 0.2 percentage points, adjusted from the current 1.7% to 1.5%, while guiding the loan market quotation interest rate and deposit interest rate to decline synchronously, maintaining the stability of the net interest margin of commercial banks."After the implementation of the reserve requirement ratio (RRR) reduction policy, the average reserve requirement ratio for the banking industry is approximately 6.6%. Compared with the central banks of major economies internationally, there is still some room for adjustment," emphasized Pan Gongsheng.

At the same time, the interest rates on existing housing loans will be reduced, and the minimum down payment ratio for housing loans will be unified. Pan Gongsheng stated that commercial banks will be guided to lower the interest rates on existing housing loans to a level close to that of newly issued loans, with an expected average reduction of around 0.5 percentage points. The unified minimum down payment ratio for first and second homes will see the national minimum down payment ratio for second-home loans reduced from the current 25% to 15%.

Pan Gongsheng indicated that the expected average reduction of 0.5 percentage points in the interest rates on existing housing loans is anticipated to benefit around 50 million households and 150 million people, reducing household interest expenses by approximately 150 billion yuan per year on average. For the adjustment of existing housing loan interest rates, banks will require a certain amount of time for technical preparation. Subsequently, the mortgage loan mechanism of commercial banks will be improved, allowing banks and customers to autonomously negotiate and dynamically adjust based on market principles.

Furthermore, Pan Gongsheng stated that there will no longer be a distinction between first and second homes at the national level, with the unified minimum down payment ratio set at 15%. Localities can implement differentiated down payment ratio arrangements within their jurisdictions based on this foundation. Commercial banks will determine the specific down payment ratio based on the customer's risk profile and willingness.

Additionally, the People's Bank of China will optimize the policy for refinancing guaranteed housing, increasing the central bank's funding support ratio for the 300 billion yuan refinancing guaranteed housing created by the People's Bank of China in May from the original 60% to 100%, enhancing market-oriented incentives for banks and acquisition entities. He also announced that the operational property loans and the "Financial 16 Articles" policy documents, which are due to expire by the end of this year, will be extended to the end of 2026.

The central bank will also create new monetary policy tools to support the stable development of the stock market. Pan Gongsheng stated that the first initiative is to create a swap facility for securities, funds, and insurance companies, supporting eligible securities, funds, and insurance companies to obtain liquidity from the central bank through asset collateralization, significantly enhancing the institutions' ability to obtain funds and increase stock holdings. The second initiative is to create a special refinancing loan for stock buybacks and increases, guiding banks to provide loans to listed companies and major shareholders to support stock buybacks and increases.

Capital increase for six large commercial banks

Large commercial banks are the main force in serving the real economy within China's financial system and are also the cornerstone for maintaining financial stability.

In recent years, large commercial banks have mainly relied on retaining their own profits to increase capital. However, as the intensity of banks' fee reductions and profit concessions continues to increase, the net interest margin has narrowed, and profit growth has gradually slowed down, necessitating a coordinated approach to enrich capital through internal and external channels.

At the meeting, the Director-General of the Financial Regulatory Authority, Li Yunze, stated that currently, large commercial banks are operating and developing steadily, with stable asset quality and all major regulatory indicators within the "healthy range". To consolidate and enhance the ability of large commercial banks to operate and develop steadily, and to better play the role of the main force in serving the real economy, it has been decided that the state plans to increase the core tier-one capital of the six large commercial banks. This will be implemented in an orderly manner following the approach of "overall promotion, phased and batch implementation, and one bank, one policy".Li Yunze stated that the Financial Regulatory Authority will continue to urge large commercial banks to enhance their refined management levels and strengthen their high-quality development capabilities under capital constraints. It is understood that this year, the Financial Regulatory Authority has coordinated to advance three key tasks: risk prevention, enhanced regulation, and development promotion. In terms of risk prevention, focusing on key areas and actively promoting the reform and risk resolution of small and medium financial institutions, high-risk institutions have formed specific reform and risk resolution plans in their concentrated regions, which are being implemented in a stable and orderly manner under the "one province, one policy" approach.

Insurance companies are important institutional investors in the capital market. Not long ago, the State Council issued new insurance "national ten articles," which comprehensively deployed and systematically planned for the high-quality development of the insurance industry. Currently, the Financial Regulatory Authority is also actively promoting pilot reforms for long-term investment of insurance funds and supporting participation in the construction of the capital market.

Li Yunze said that the Financial Regulatory Authority has promoted pilot projects with China Life and New China Life, jointly initiating the establishment of private securities investment funds to raise insurance funds for investment in the capital market. The next step will be to expand the pilot reform of long-term investment of insurance funds, support other eligible insurance institutions to establish private securities investment funds, and further increase investment in the capital market. At the same time, it is necessary to encourage and guide insurance funds to carry out long-term equity investments, encourage wealth management companies and trust companies to strengthen their equity investment capabilities, issue more long-term equity products, actively participate in the capital market, and cultivate and expand patient capital through multiple channels.

The reporter also learned at the press conference that financing for small and micro enterprises has shown a trend of "increasing volume, expanding coverage, and stable prices." As of the end of August this year, the balance of inclusive small and micro enterprise loans nationwide reached 31.9 trillion yuan, quadrupling from the end of 2017, with the average interest rate cumulatively decreasing by 3.5 percentage points.

To further unblock the bottlenecks and choke points in financing for small and medium-sized enterprises, the Financial Regulatory Authority, in conjunction with relevant departments, will optimize the "no principal repayment and loan extension" policy while establishing a coordinated working mechanism to support small and micro enterprise financing.

Li Yunze stated that the next step will be to expand the scope of loan extension targets from some small and micro enterprises to all small and micro enterprises, and temporarily extend to medium-sized enterprises for a period of three years. In addition, adjust the risk classification standards, and handle the extension of loans for enterprises that operate legally and compliantly, continue to operate, and have good credit, without downgrading the risk classification solely due to loan extension.

The reporter also learned that the financial asset investment companies under large commercial banks will expand the scope of equity investment pilot work, with the pilot range expanding from Shanghai to 18 large and medium-sized cities with active technological innovation, such as Beijing. At the same time, restrictions will be relaxed, appropriately relaxing the limits on the amount and proportion of equity investment, increasing the proportion of on-balance-sheet investment from the original 4% to 10%, and increasing the proportion of investment in a single private equity fund from the original 20% to 30%. In addition, the assessment will be optimized, guiding relevant institutions to implement the requirements of due diligence exemption, and establishing a long-term, differentiated performance assessment system.

Promote the construction of a "long money, long investment" policy system.

The third plenary session of the 20th Party Congress made strategic deployments for further comprehensively deepening the reform of the capital market, proposing to improve the capital market functions that coordinate investment and financing, and support long-term funds to enter the market.China Securities Regulatory Commission (CSRC) Chairman Wu Qing stated at a meeting that long-term capital investment operations are highly specialized and stable, which is of great significance in overcoming short-term market fluctuations and playing the role of a "stabilizer" and "ballast stone" in the capital market.

In recent years, the CSRC has vigorously promoted the development of equity-based public funds and, together with relevant parties, has continuously encouraged long-term capital to enter the market, achieving some phased results.

According to Wu Qing, by the end of August this year, the combined holdings of A-shares' floating market value by professional institutional investors such as equity-based public funds, insurance funds, and various types of pension funds approached 15 trillion yuan, more than doubling from the beginning of 2019, and the proportion of A-shares' floating market value increased from 17% to 22.2%. Among them, the National Social Security Fund stands out. Since its establishment, the National Social Security Fund has achieved an average annualized return rate of over 10% in the domestic stock market investment, becoming a model of long-term investment and value investment in the A-share market.

On the other hand, the current capital market still faces prominent issues such as insufficient total amount of long-term capital, suboptimal structure, and insufficient leading role, and the institutional environment for "long money for long-term investment" has not yet been fully formed.

It is understood that to further address the pain points and blockages for long-term capital entering the market, the CSRC and relevant departments have recently formulated the "Guiding Opinions on Promoting Long-Term Capital into the Market" (hereinafter referred to as the "Guiding Opinions"), which will be issued soon.

Wu Qing said that the reform on the investment side will be accelerated to promote the construction of a policy system for "long money for long-term investment," further improve the policy toolkit, and firmly guard the bottom line of risk.

Wu Qing introduced that the "Guiding Opinions" contain a series of arrangements to support long-term capital entering the market. The overall goal is to achieve "more long money, longer long money, and better returns," with a focus on three main measures: first, vigorously develop equity-based public funds; second, improve the institutional environment for "long money for long-term investment"; and third, continuously improve the capital market ecosystem.

In terms of vigorously developing equity-based public funds, the focus is to urge fund companies to further correct their business philosophy, adhere to investor return orientation, focus on improving investment research and service capabilities, create more products that meet the needs of the people, and create long-term returns for investors.

"Recently, everyone may have also noticed that 10 new CSI A500 ETFs were issued and were very popular in the market, quickly reaching the fundraising limit. Next, we will further optimize the registration of equity-based fund products, vigorously promote the innovation of broad-based ETF and other index products, and timely launch more ETF fund products including those for small and medium-sized plates such as the ChiNext and STAR Market, to better serve investors and better serve national strategies and the development of new quality productive forces." Wu Qing said that the next step will also promote the public fund industry to steadily reduce the comprehensive fee rate, better benefit investors, and reward investors.

In terms of improving the institutional environment for "long money for long-term investment," Wu Qing said that the focus is to increase regulatory tolerance for long-term capital's equity investment and fully implement long-term assessments of more than three years. Remove institutional obstacles affecting long-term investment of insurance funds, promote insurance institutions to be firm value investors, and provide stable long-term investment for the capital market. At the same time, guide the multi-level, multi-pillar pension security system to interact positively with the capital market, improve the investment policy system of the National Social Security Fund and basic pension insurance funds, and encourage enterprise annuity funds to explore different types of differentiated investments based on the different ages and risk preferences of the holders.In the context of continuously improving the capital market ecosystem, the focus is on employing multiple measures to enhance the quality and investment value of listed companies, as well as to refine the supporting institutional arrangements for institutional investors to participate in the governance of listed companies. Concurrently, there is a strong crackdown on all types of illegal and non-compliant activities to foster a favorable market environment where medium and long-term funds are "willing to come, able to stay, and develop well".