China Central Bank: Stock Market Bubble Has “Burst”

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Chinese government officials claim that the stock market meltdown in that country is over, and that the rest of the world can expect greater stability from Chinese financial markets in the future.

China Central Bank Governor Zhou Xiaochuan told the Joint Meeting of G20 Finance and Labour Ministers in Ankara on Friday that the stock-market bubble in his country had “burst”. According to a Japanese finance ministry official attending the meeting, the Chinese central banker used the word “burst” three times in his explanation of what is going on with the stock markets.

Of note, China’s main equity index, the Shanghai Composite, is down close to 40% since hitting a three-year high earlier this summer.


More on China at Ankara G20 meeting

Several sources are reporting the Chinese delegation at the Ankara G20 meeting said they were shifting to a different economic growth model and trying to minimize disruptions. They argued that they were working to lower indebtedness and are planning new policies that will help control stock market volatility.

“China is definitely trying to play a constructive role,” Canada’s Finance Minister Joe Oliver commented in a presser Friday. “It is the second-largest economy in the world and so when it slows down it has global implications. That is I think what we are dealing with.”

China explains yuan devaluation

One source who attended the meeting said he China central bank governor told the group that its currency devaluation wasn’t an effort to take exports from other countries and that explanation was accepted by the other leaders, according to an article by Greg Quinn, James Mayger, and Sharon Chen of Bloomberg News.

“No one can predict exactly on the market volatility, but I’m confident that the renminbi exchange rate will be more or less stable around the equilibrium level,” Yi Gang, China’s deputy central bank governor, noted in an interview. “The Chinese economy’s fundamentals are fine.”

Bloomberg states:

Another official present at the talks said China had presented the country’s situation as a new normal.

“It wasn’t enough,” Aso told reporters. “They may have tried to be constructive, but they weren’t detailed enough.”

Statement on Saturday from PBOC

A new statement posted on the PBOC’s website on Saturday claimed that the recent government intervention in the stock markets had minimized systemic risk and stopped the fall in share prices. The statement was attributed to PBOC Governor Zhou, who also went on to note that the yuan’s exchange rate versus the dollar will be more stable in the future.

Below is a copy of the statement using Google translate (it appears that the statement is not on the English version of the website…):

September 4, 2015 to 5, the Group of Twenty (G20) finance ministers and central bank governors meeting in the Turkish capital Ankara. The meeting mainly discussed the current issues of global economic situation, growth framework, investment and infrastructure, international financial architecture, financial sector reform and international tax cooperation and issued a joint communique. People’s Bank of China Governor Zhou Xiaochuan and Finance Minister Lou Jiwei, Chinese delegation to attend the meeting.

Conference believes that the current number of the country’s economic strength, but the global economic growth is still lower than expected. Conference pledged to take decisive action to promote global economic track, and speed up the recovery of the global economy confidence. The meeting called for countries to adjust policies prudent action and carry clear communication, so that the negative spillover effects to a minimum, reduce uncertainty and improve transparency.The meeting noted that, as the economic outlook has improved, some developed economies will likely tighten monetary policy. The Conference reaffirmed To prevent competitive currency devaluation and resist all forms of trade protectionism. At the same time, countries should be based on recent changes in the economic situation of the flexibility to adjust fiscal policy to support economic growth, create jobs, and the debt-GDP ratio is maintained at sustainable levels. Meeting the commitment will continue timely and efficient implementation of the G20 overall growth strategy to expand demand and improve the potential growth and enhance inclusiveness.

The meeting held that investment promotion is a priority countries. G20 countries to develop a national investment strategies to improve the investment environment and promoting efficient investment in infrastructure, and to provide financial support for SMEs. Conference on the implementation of International Monetary Fund (IMF) 2010 ? quota and governance reform program delays deeply disappointed, strongly urge the United States to approve the plan as soon as possible, and look forward to IMF in November 2015 on the Special Drawing Right (SDR) currency basket review progress.The Conference reaffirmed the remainder of the year will be completed by the core elements of the global financial system reform program and look forward to the completion of the development on the total loss absorption capacity of internationally harmonized standards for the importance of the global banking system, and proposed a higher loss absorption capacity for global systemically important insurance agencies Claim. Conference promised to establish a global fair and modern international tax system, expected in October this year to complete all the 15 action plans on the tax base erosion and profit transfer (BEPS) and submit the Antalya summit. The positive results of the meeting of the General Assembly on Financing for Development in Addis Ababa welcomed the progress made, and look forward to the upcoming United Nations summit in New York passed the “2030 agenda for sustainable development.” Conference said it would get the first 21 Meeting of the Parties of the United Nations Framework Convention on Climate Change positive and balanced results and work together.

Zhou Xiaochuan, China introduced the recent financial market conditions. Zhou Xiaochuan pointed out that in mid-June this year, China was the accumulation of the stock market bubble. March to June, the Shanghai Composite Index rose 70 percent. In this process, there has been a rapid increase investor leverage ratio and other issues, there are potential risks. Since mid-June, China’s stock market occurred three adjustments, including adjustment of the first two rounds No international influence, in late August the third round of adjustment had some global impact. To avoid systemic risk, the Chinese government adopted a series of policies and measures, including the People’s Bank to provide liquidity to the market through multiple channels. Chinese government’s measures to avoid the stock market downturn and systemic cliff-style risk. Since the stock market adjustment, lever rate has decreased significantly, on the real economy has not produced significant effects. Given the mutual influence of the financial markets, the People’s Bank on August 11 this year, the RMB exchange rate mechanism reform offer, increasing the market-determined exchange rate intensity, which is an important step in the reform of the RMB exchange rate market. Early dollar strength and general devaluation of emerging market economies, the currency effect, the RMB real effective exchange rate on the strong side, and because of the financial market turmoil has recently more liquidity into the market and other reasons, there was a certain degree of RMB devaluation after the reform. But China’s economic fundamentals have not substantially changed, the foreign trade surplus remains large, there is no long-term depreciation of the RMB basis. Currently, the yuan-dollar exchange rate has stabilized, the stock market correction has been largely in place, the financial market is expected to be more stable.

Zhou stressed that although there have been some fluctuations in the financial market, the Chinese government’s determination to deepen the reform has not changed, still in accordance with the CPC Central Committee, State Council approved the plan of orderly reforms.

Lou Jiwei said that the current economic situation in China is still expected within. China’s economy has entered a new normal, growth is expected to remain at around 7%, and this state may last 4-5 years. First, China has made in the past to rely on policy stimulus 9% to 10% growth rate. But this is not sustainable, but also beyond the potential growth rate of China’s economy, and lead to overcapacity and a significant increase in inventory, we must gradually absorb capacity and destocking, which could take several years. Meanwhile, the next five years China’s economic structural adjustment pains, the main task should also include structural reforms in 2020 is complete. In this process, the Chinese economy will be relying mainly on investment and exports towards more rely on consumer-driven, it will be a difficult adjustment process. Secondly, the Chinese economic cycle and the developed countries is different. After the international financial crisis, developed countries generally start the deleveraging process, but China from 2009 to 2010 began a rapid deleveraging, and to achieve about 10 percent of economic growth, contribute to global economic growth rate of up to 50 %the above. At present, China has entered a phase of deleveraging, economic growth fell to around 7%. But even so, the Chinese economy’s contribution to global economic growth rate is still around 30%.

Lou Jiwei said that despite the economic slowdown, but the Chinese economy also some welcome change. Contribution to economic growth rate of consumption over investment, services share of GDP over the industry; trade surplus-GDP ratio has declined, more balanced international payments; in the first half more than 7 million new jobs, economic growth, quality continues to improve ecological environment gradually improved. China will continue to implement a proactive fiscal policy. The central government spending growth is expected at around 10 percent, higher than the beginning of the budget revenue growth rate of about 7%. China is filling the financial gap by increasing the proportion of the particular SOE profits turned over to other methods, in order to maintain moderate economic growth, support to promote structural reforms.

Lou Jiwei stressed that the Chinese government does not particularly care about short-term economic fluctuations in quarterly, will maintain macroeconomic policy, “anyone.” The greatest potential lies in the reform of China’s economy. In the demographic dividend disappear, return on capital declined in the background, the Chinese government efforts to promote structural reforms to continuously improve total factor productivity, in order to reform the disappearance of the demographic dividend bonus to hedge, so that economic growth remains at around 7%. In short, China is in accordance with established deploy, unswervingly push forward reform and opening up.

During the meeting, Zhou Xiaochuan also attended the first meeting of the BRIC countries Reserve Board contingency arrangements. People’s Bank of China Deputy Governor Yi Gang attended the G20 Finance and Central Bank Deputies’ Meeting and the BRICS contingency arrangements for the first meeting of the Standing Committee. (Finish)


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