Abstract: at present, the overall operation of China’s economy is in a reasonable range, but the complexity and uncertainty of China’s external environment have intensified. Affected by the multi-point and large-scale recurrence of the epidemic in China, the geopolitical conflict between Russia and Ukraine and the “three shocks” of the Federal Reserve’s interest rate hike, some difficult industries in the industrial field, such as contact aggregation service industry, medium and downstream small and medium-sized manufacturing enterprises and export processing industries, face greater credit risks. Therefore, on April 6, the national standing committee pointed out that “we should make timely use of monetary policy tools, give better play to the dual functions of aggregate and structure, and increase support for the real economy”. With the implementation and improvement of relevant policies, especially the creation of two new structural policy tools, the liquidity pressure of the above-mentioned difficult industries is expected to weaken and the credit risk may be effectively mitigated.
On April 6, 2022, the executive meeting of the State Council pointed out that we should make timely use of monetary policy tools, give better play to the dual functions of aggregate and structure, and increase support for the real economy. While maintaining the “addition” of the original structural policies, the meeting proposed the establishment of two special re loans for scientific and technological innovation and inclusive pension, and further increase the tools of structural monetary policy. According to the current practice, the central bank is expected to introduce the two monetary policies to reduce the total interest rate and other financial difficulties as soon as possible, and it is expected that the central bank will also introduce these two monetary policies to alleviate the operating difficulties of enterprises as soon as possible.
The national standing committee will fully deploy monetary policy in a timely manner to more effectively support the development of the real economy. The meeting pointed out that we should make timely and flexible use of a variety of monetary policy tools, give better play to the dual functions of aggregate and structure, and more effectively support the development of the real economy. First, strengthen the implementation of prudent monetary policy and maintain reasonable and sufficient liquidity. We will increase re loans for supporting agriculture and small businesses, and use market-oriented and legalized methods to promote financial institutions to reasonably transfer profits to the real economy. The second is to study and adopt financial measures to support consumption and effective investment, improve the level of financial services for new citizens, optimize affordable housing financial services, ensure the construction financing of key projects, and promote the rapid growth of medium and long-term loans in the manufacturing industry. Third, set up two special re loans for scientific and technological innovation and inclusive pension, and the people’s Bank of China will provide re loan support for the loan principal respectively. We will do a good job in replenishing the capital of small and medium-sized banks with special government bonds, and enhance the credit capacity of banks. While using the aggregate monetary policy to maintain reasonable and sufficient liquidity, the above policy deployment pays more attention to the functions of structural policies in supporting small agricultural expenditure, supporting consumption and effective investment, and ensuring the construction of key projects. It is expected to more effectively support the development of the real economy and ensure that the economy operates within a reasonable range.
The NPC pointed out that at present, the overall operation of China’s economy is within a reasonable range, but the complexity and uncertainty of China’s external environment have exceeded expectations. The world economic recovery has slowed down, the grain, energy and other commodity markets have fluctuated sharply, the epidemic in China has occurred frequently recently, the difficulties of market players have increased, and the new downward pressure on the economy has increased. Previously, the central bank’s regular monetary policy meeting in the first quarter of 2022 also pointed out that the current foreign epidemic continues, geopolitical conflicts escalate, the external environment becomes more complex, severe and uncertain, the frequency of epidemic in China has increased, and the economic development is facing the triple pressure of shrinking demand, supply shock and weakening expectation. In this context, we should give full play to the role of monetary policy as a financial stabilizer, make timely use of monetary policy tools, strengthen cross cyclical and counter cyclical regulation, strengthen the implementation of prudent monetary policy, give full play to the dual functions of the total amount and structure of monetary policy tools, respond actively, boost confidence, provide stronger support for the real economy, stabilize the macro-economic market and improve the liquidity of the real economy, It is particularly necessary and urgent to slow down the capital pressure and credit risk of enterprises and keep the bottom line of no systemic risk.
The “triple pressure” superimposed with the new “three shocks” has had an obvious negative impact on China’s economic operation. Financial data in February were lower than expected. In terms of total amount, the scale of social finance increased by 1.19 trillion yuan in February, an increase of 534.3 billion yuan less than the same period last year, of which RMB loans to the real economy increased by 908.4 billion yuan, an increase of 432.9 billion yuan less than the same period last year; From the perspective of structure, the medium and long-term loans of enterprises and residents were still weak in February, and the scale of off balance sheet financing continued to shrink. According to the questionnaire survey report of bankers in the first quarter of the central bank, the total demand index for loans in the first quarter was 72.3%, an increase of 4.6 percentage points over the previous quarter, but a decrease of 5.1 percentage points over the same period of the previous year; The loan demand index of real estate enterprises was 47.2%, still in the contraction range. In terms of leading indicators, the PMI index fell back to the contraction range in March, the supply and demand of the manufacturing industry fell simultaneously, and the outlook of the service industry decreased significantly. It can be seen that the “triple pressure” superimposed on the multi-point large-scale recurrence of the epidemic, the geopolitical conflict between Russia and Ukraine and the Fed’s interest rate hike have had a significant negative impact on China’s economic operation.
Structural monetary policy tools are mainly aimed at industries with operating difficulties and industries in need of support, which helps to improve the financing environment and credit status of industries in specific fields. The regular monetary policy meeting of the central bank in the first quarter of 2022 pointed out that the structural monetary policy tools should actively “add”, make accurate efforts, make good use of the inclusive small and micro loan support tools, increase the small refinancing for supporting agriculture, implement the carbon emission reduction support tools and special refinancing for supporting the clean and efficient utilization of coal, comprehensively implement policies to support regional coordinated development, and guide financial institutions to increase their support for small and micro enterprises, scientific and technological innovation and green development. The national Standing Committee proposed the establishment of two special refinancing projects: scientific and technological innovation and inclusive pension. It is expected that the loan interest rate will be reduced through policy subsidies. At the same time, the scope of application will be relaxed as much as possible, the scope of support will be expanded, the scientific and technological enterprises will be strengthened to resist external shocks, alleviate the pressure of cash flow and improve the credit status of enterprises. In the case of increasing aging and insufficient elderly care facilities and services, increasing financial support for the elderly care industry by means of special refinancing for the elderly is of great significance to promote the development of the elderly care industry and expand market demand.
The aggregate monetary policy tool is an important guarantee for maintaining the moderate growth of new loans, stabilizing the overall economic growth, and realizing the recovery and expected improvement of aggregate demand. In July and December 2021, the reserve requirement was lowered twice, injecting 2.2 trillion yuan of long-term low-cost funds into the banking industry, which played a positive role in reducing the interest rate in the credit market and bond market, reducing the financing cost of enterprises and stimulating the financing demand of enterprises. At present, the deposit reserve interest rate is still at a high level. It is expected to further release liquidity by reducing the reserve requirement, promote banks to expand credit supply, reduce loan interest rates, and promote the recovery and growth of the total demand of the economic system. After two years, the central bank lowered the MLF operating interest rate in January 2022 to guide the decline of LPR and reduce the financing cost of enterprises. On the basis of the reduction of reserve ratio and the room for the reduction of MLF operating interest rate, it is expected that LPR will also decline further in the near future, so as to improve the financing willingness of the physical sector and stimulate the growth of investment and consumption.
At present, some difficult industries in the industrial field are facing great risks and need both aggregate and structural policies to play a dual role. First, enterprises in the service industry, especially those in aviation, tourism, catering and other industries that are greatly impacted by the epidemic, have difficulties in operation and tight liquidity. Second, the enterprises in the manufacturing industry, especially the private processing and manufacturing enterprises in the middle and lower reaches, are facing great pressure of continuous operation and credit risk due to the impact of factors such as the rise in the price of raw materials, the contraction of market demand, the impact of the epidemic and the interruption of supply chain. The third is the export processing industry. On the one hand, the production is difficult to sustain due to the rise of import prices and freight of raw materials and the sanctions of interruption of supply of key components. On the other hand, with the gradual resumption of foreign production and the reduction of export orders, the operation of enterprises is facing difficulties. Overall, the aggregate monetary policy has a certain mitigation effect on the credit risks of the above industries. However, due to the long accumulation time and large scale of such risks, the aggregate monetary policy is difficult to fundamentally solve the problem, so it is necessary to play an important role of structural monetary policy.
The existing structural monetary policy tools have a good coverage of the difficult industries in the above industrial fields. Previously, the policies on financial support are also involved in the “several policies for promoting the steady growth of industrial economy” and “several policies for promoting the recovery and development of difficult industries in the service industry” jointly issued by multiple ministries and commissions. It is believed that with the implementation and improvement of relevant policies and the creation of new structural policy tools, the liquidity pressure of difficult industries may be weakened and the credit risk will be effectively mitigated.
It is worth noting that the current structural monetary policy has not covered the real estate and urban investment industries, so we need to continue to pay attention to the credit risks of these two industries. For the real estate industry, since this year, with the shrinking sales volume and the downward price, all localities have successively relaxed or even cancelled the purchase and loan restrictions, and the industry is expected to enter a benign development. At the meeting of the Finance Committee in March, it was specifically pointed out for the real estate industry that it is necessary to timely study and put forward effective risk prevention and resolution solutions, and put forward supporting measures for the transformation to the new development model, which actually defines the reform and development direction of the real estate industry and indicates the fate of some sub enterprises being eliminated. Therefore, we need to pay special attention to the possible credit risks of enterprises with high leverage, heavy debt burden and blind expansion in the real estate industry. For the urban investment industry, under the multiple constraints of Resolutely Curbing the new implicit debts of local governments, increasing the pressure on local governments’ revenue and expenditure, and the obvious increase in the maturity and resale scale of urban investment bonds, the financing of urban investment enterprises will still be tightened to a certain extent, especially for some urban investment enterprises in areas with weak financial resources and high debt level, their financing ability may be further weakened and the liquidity pressure will continue to increase. Therefore, we need to continue to pay attention to the credit risk of urban investment enterprises with high debt and weak qualification.
