Analysts Look For PBOC Policy Shift; PBOC Deputy Director Says M2 to GDP Ratio is Too High

Sensing deflation is afoot, the banking analysts turn to the only solution ever imagined: print more money/ allow banks to lend more credit.

Has the Time Come for a PBOC Policy Shift?

But a number of economists say there’s a real need for the central bank to cut the reserve requirement ratio. On Friday, ANZ Bank wrote in a report, “It is time for the PBOC to cut the reserve requirement ratio,” adding that the risk of deflation is rising and real economic activities remain “lukewarm.”

Likewise, Nomura economist Zhang Zhiwei said that policy easing is becoming more likely due to declining inflation and rising risks in the property sector, adding the bank expects a 50-basis point cut in the second quarter.

Feng Jianlin, an economist with the Beijing Fost Economic Consulting Co., says that China risks deflation if it doesn’t cut the reserve requirement ratio. “It’s already a bit late,” he said. “I see no reason to wait.” China’s producer prices have fallen for 26 straight months.

The PBOC hasn't signaled it will loosen policy though, and today at the Tsinghua University PBC School of Finance Global Financial Forum, the deputy director of the PBOC said the M2 to GDP ratio is too high.

央行副行长：中国M2/GDP存在扭曲 比值较高

Phoenix Financial News sponsored by Tsinghua University "Tsinghua Wudaokou Global Finance Forum "2014 May 10 to 12 in Beijing. Phoenix Finance as the only all-media partners, for your entire real-time broadcast of the meeting.

Central bank vice governor Liu Shiyu said at the forum, there are two types of current financial market distortions. A twist is, we often say that among the M2 with macroeconomic GDP ratio. He said that so far it is difficult to say what is on economics authoritative interpretation or it has an inherent function of the economy, financial markets will be able to infer the parameters deduced M2 with a safe percentage of GDP range, but also in finance on Can not find the answer on financial engineering. But there is an experience, horizontal data are more likely to have a certain reference value. China this figure is still relatively high, although the number of high and low on the economics of this is not necessarily linked with the risk, but in general a little higher than the total low good.

The following is a memoir of his talk:

Liu Shiyu: teachers, alumni, the colleagues, Hello everybody am very pleased to participate in the National Institute of Tsinghua University's inaugural meeting of the Finance and Global Financial Forum Wudaokou first forum.

First, our esteemed Wu told me yesterday afternoon to talk about the importance of the payment and settlement of financial markets in the new environment and her Thoughts on this issue from policy to technology. Just jiange chairman spoke of "three" overlay, the growth rate of economic growth to change the schedule, digestive pains and a variety of pre-reform stimulus or prominent contradictions when it is one of our current stage of economic and financial characteristics. This stage is characterized by the very obvious financial performance, our quality of banking assets, the ratio of non-performing assets increased momentum, the financial effects in a way we might have a long cycle, large span can be brought into the procyclical a significant turning point. We can see that in 2013 published annual reports of 15 listed banks, write off bad loans, plus some regional financial risks, possible write-offs of bad loans last year even more. In any case we should deepen the reform in accordance with the Third Plenum of the Party's decisions, in particular play a decisive role of the market in allocating resources, and to develop the design of the financial markets.

Second, a healthy and efficient financial markets by identifying risks, diversify risk, or the risk of the three pillars of the rack to prevent the efficient allocation of resources. Development of financial markets in the current basis is still in deepening the reform of the financial position, and even the design of the financial system had to pass the market test, the performance of the market to be healthy and effective operation, to some extent out of the market financial rules do not exist. But currently there are two types of financial market distortions.

The first distortion is the ratio of M2 with GDP macroeconomic we often say among this so far in terms of economics is difficult to say what is the authority on the interpretation or it has an inherent function of the economic and financial market parameters can infer, deduce M2 with a safe percentage of GDP range, I think in the finance, can not find the answer on financial engineering. But there is a lateral comparison of empirical data may have some reference value, we have this figure is still relatively high, I said high and low on the economics of this number is not necessarily linked with the risk, but in general the high total not as good a little low, but in the past few years we want to adjust the proportion of direct financing sought with indirect financing, but the effect of the adjustment is not ideal. Therefore, the entire financing structure based on indirect financing in recent years, the situation deteriorated in some way or some such structure for sustainable development of the national economy is very bad. We all know the risks of the market economy in which capital is the core of all credit, distorted this financing structure, or the proportion of equity financing when the proportion of the entire financing is always less than 15%, which is indirect financing or external financing premium will be reflected in higher financing costs. Everyone's attention, and now the high cost of financing, there is now distorted structure of our financial system, with indirect financing reflects the risk premium on the economy are inseparable.

The second twist is a twist in the financial market behavior, outstanding performance in various financial institutions and interbank business, financial services, but also in the real economy, its own operation. We say that the real economy is reflected in the behavior of distorting what place? I'm thinking there is at least so in several ways.

First, the price signal is extremely slow reaction to the funds. A healthy economy for 18% of the cost of financing should be averse, but this cost we can actually go out of itself explain the behavior of our entities have distorted.

Second, do engage in financial hot, hot or generalized financial guarantees, a society if we want to do finance, it may have a high fever is a condition affecting the brain's ability to think.

Third, some large companies own financial company would have to play a think-tank functions, but also joined the pursuit of profit, to strengthen financial management within the Group, while profit center, the practice I still worry.

Then there are financial innovation, in some respects actually evade regulation, including risk allowance, insurance, capital constraints, including credit guidelines, including tax these areas, blindly pay attention to innovation, even the deposit to move it as a simple innovation, I It did not feel the positive contribution of these innovations may still be worth considering the adjustment of the economic and financial structure of the whole society and improve labor productivity.

Third, I would like to think that financial market development and innovation of some of the highlights.

1, around the Third Plenary Session of the Party's eighteen emphasized sound multi-level capital market, multi-channel to promote equity financing, raise the proportion of direct financing, which are among the Third Plenary Session of the original decision, this is also one of the most of our financial work The bottom line requirements. I understand that the capital market is to a healthy one is comprehensive, multi-level one is to. So, look at the financial market system in which the problem of the existence of various categories, core or a bid to solve this problem or should China multi-level capital market developed. Very happy last night, version 3.0 officially released nine countries, which means that China's stock market capital market will enter a new stage of development. But still have to make an effort in terms of policy, like everyone recognized some of the institutional arrangements, or to give the government and the market, international and domestic, domestic and wider variety of forces, a variety of resources, China is still Yaodazaochu few aircraft carriers level The investment bank, whether it is the insurance industry, the securities industry or banking, a country's financial system is not a few pieces of the pillars in this industry is no reliable large-scale backbone, occupies a market concentration, proved or not. So, I think the development of China's capital market, the authority chairman Yao Gang, I'm from an outsider perspective, should have a "carrier." At the same time, to expand the capacity of our capital market financing, refinancing not light.

2, the development of the financial market innovation focus is the bond market. I want to say is developing rapidly in recent years, rapid development of the foundation is to have a high degree of consensus between the government, the financial sector, central banks and financial regulatory authorities, to promote the healthy development of the bond market. When there is a high degree of consensus among departments, when China's financial market will develop faster. Meanwhile, we risk the current local debt financing platform a little more attention, my experience this problem is solved or rely on the development of a good bond market, where the current debt and financing platform for risk management and control issues can not be do not ask indiscriminate Yigai be demonized, I think our repeated estimates government debt, including the central government's debt, local government debt, including debt financing platform, it is not available you can not afford to digest digest it, future or to increase. We remember the general secretary in this year's economic work meeting this year's economic situation has made a very scientific anticipation, is called the consumer is the foundation, but also a certain degree of saturation of the local consumption, investment or critical, external demand is supported In the case of the current volatile international markets, and domestic consumption characteristics of a particular stage, the investment may still be the key to increasing investment in railways, increase affordable housing in shantytowns investments in these areas to rely heavily on the financial markets and bond markets, including the next municipal bonds are still relying on the adjustment of the bond market and corporate financing structure, the bond market is the key.

3, I think it must be determined to rectify the financial services industry and a variety of financial services, otherwise, easily put our investors, including the pursuit of short-term public-oriented Gregory, not the pursuit of long-term return on the capital market development to produce extremely large spillover effects. For example, take public money to a bank to buy 8% of financial products, the bank plus three points, 11 percent take the privilege agency channel, channel plus three points to enter the entity, about 14%, which is pretty good cost, but this layer with water, every aspect of the practice of picking Piga code directly raise the cost of the real economy, improve labor productivity is no contribution, but also a nation would put a country's financial system into an extremely short-term behavior with a gambling mentality, in which case someone will take less money to buy the stock, because stock market risk, buy this channel banking, industry can not lose, because we all know Sometimes, especially in the bank's financial, once a risk, it seems pressure from all sides is called a rigid payment, this result is very bad result.

Distorted behavior when speaking in front of remediation, as well as one of our real economy, we are now engaged in some listed companies also called financial management, engage in so-called upstream and downstream industry chain financial services, this problem is very worthy of scrutiny. In fact, the kind of wealth that is usury, I think this behavior with the entity itself is very unstable-consistent.

4, to develop asset securitization, if there is no asset securitization, the bank's balance sheet we will be bigger and bigger, corporate balance sheets will be bigger and bigger, which needs capital to pay more only surface water, surface more water, it is a commonplace subject, said several times, that is to say after we implement the Basel 3 international standards, we are so much banking market, if there is no asset securitization financing the real economy will be in the stock market a tremendous spillover effect.

Fourth, the long-term effect is a very bad situation, but the asset securitization and important aspect is to have a derivative, the CDS is to keep this aspect we also need regulatory consensus is to CDS and financial Capital Institutional consumption overall consideration. When a bank holding and the corresponding CDS of ABS, the capital consumption should be given full consideration and deductions, otherwise cross-holding asset securitization business, as well as the purchase of securities of public service are not much enthusiasm. But we do not agree to engage ABS, CDS products, and suitable mixtures of N-th power, these aspects are not very good with the factors likely to mislead the public, and to mislead the direction of innovation in financial markets. But the most basic ABS + CDS is an important financial tool for the healthy development of the financial market correction or integral structure, which hopes to further research in all aspects of our consensus.


Fifth, to support the transfer market development loan market, loan transfer market is still in favor of reducing the financial and credit institutions capital consumption, but also conducive to more social capital led to a multi-level capital market up. Future loans and CDS transfers can also be combined, and CRM tools combine these capital-release, so that a variety of multi-level functional positioning, a clear market levels and features a combination of clear market instruments mutually very beneficial to the multi-level capital market development of multi-level capital market only after the development of our financial sector balance sheets in order to become healthy, financing costs society as a whole can do to reduce some appropriate under the guidance of the financial markets and equity markets.

I'm not just talking about the macro side, thank you very much for inviting me to do this jiange speech, I wish the forum a complete success, I wish all of you the elite to achieve greater academic achievement, earn more wealth. Thank you.