The People's Bank of China (PBC) released the 2019 China Financial Stability Report lately, which gives a comprehensive review of the soundness of China's financial system since 2018. According to the report, since 2018, with the world's economic and political landscape undergoing profound adjustment, external challenges confronting China's economic and financial development have increased markedly. Against the backdrop, China's financial sector has upheld the underlying principle of pursuing progress while ensuring stability. In line with the requirements for high-quality development, solid efforts have been made despite difficulties to promote effective implementation of macro policies. As a result, financial support for the real economy has been stepped up, financial order has been improving, financial reform and opening-up have achieved progress, and the tough battle of preventing and defusing major financial risks has got off to a good start. All these have contributed to sustained and sound economic development as well as social stability.

As pointed out in the report, due to various internal and external factors, deep-seated conflicts in the Chinese economy that have been building up over the years are starting to show, financial risks are prone to break out, and economic growth is faced with more difficulties. Internationally, there is a greater likelihood that global economic growth will see a reversal in its upward trend; financial markets are highly sensitive to the situation of trade amid rising unilateralism and trade protectionism worldwide; and uncertainties over global liquidity are on the rise. Domestically, financial risks have begun to show new features and new trends of evolution. While incremental risks related to institutions of special concern and all sorts of illicit financial activities have been contained effectively, more work needs to be done to resolve existing risks. As financial markets are highly sensitive to external shocks, the risks of abnormal market fluctuations should be closely watched.

According to the report, in the past year, under the command and coordination of the State Council Financial Stability and Development Committee, the PBC worked with other agencies concerned to apply tailored policies to different risks in line with the overall requirements for fighting the tough battle. Work was done in a timely way to remove “with precision” the risks in key fields that could jeopardize financial stability. Proactive steps were taken to gradually defuse lingering potential risks with the aim of “de-stressing slowly and achieving a soft landing”. To address the problem of institutional inadequacy, sustained efforts were made to advance regulatory reform and shore up regulatory weaknesses. To be on guard against potential “black swan” and “grey rhino” events, the PBC strengthened routine risk monitoring and assessment, and made sure that contingency plans for the resolution of different risks were put in place. Meanwhile, in defusing and resolving risks, the PBC paid special attention to the pace and intensity of policy implementation while carrying out preemptive adjustment and fine-tuning as needed. Work was also done to prevent risks that may arise from risk resolution. As a result, the stable operation of financial markets and financial institutions was effectively guaranteed. After over a year of rectification and with multiple measures taken, preventing and defusing financial risks made headway so that the macro leverage ratio was effectively stabilized. Institutions with high risks, such as Baoshang Bank, were dealt with in a stable, orderly manner. Vigorous measures were taken to straighten out financial order so that existing risks were reduced steadily. Local, structural liquidity risks of small and medium-sized banks were tackled prudently, while bond defaults of private enterprises were handled step by step. New rules on asset management were rolled out, and guidelines for the regulation of systemically important financial institutions were released to shore up the institutional weaknesses of regulation. Overall, China's financial risks, which were rapidly building up over the past years, are being mitigated gradually, while financial risks already exposed are being resolved in an orderly manner. Financial markets have performed stably, financial regulatory rules have been further improved, and systemic financial risks have been forestalled.

As we look ahead, possible triggers of economic and financial volatilities and risks are still rising worldwide, domestic downward pressure on the economy is increasing, and potential risks can be hardly eliminated in the short term. Nevertheless, the Chinese economy remains highly resilient, as China has a high savings rate and vibrant microfoundations; the operation of major financial institutions is sound and stable; macro policy instruments and regulatory mechanisms are adequate; and we have rich experience in risk prevention and mitigation. Confronted with complicated situations at home and abroad, we will stay sober-minded, grasp long-term trends, and focus on key issues so as to turn crises into opportunities and achieve positive results. We will continue to uphold the underlying principle of pursuing progress while ensuring stability, pursue supply-side structural reform as our main task, and advance reform and opening-up. In line with the guiding principle of “consolidating, strengthening, upgrading, and ensuring unimpeded flows”, great efforts will be made to ensure stable employment, a stable financial sector, stable foreign trade, stable foreign investment, stable domestic investment, and stable expectations. Work needs to be done to optimize financing structure, the system of financial institutions, the market system, and the product system, so that financial supply can be more adaptive and flexible in serving the real economy. Moreover, we will remain committed to fighting the tough battle of preventing and defusing major financial risks, properly balance the relationship between ensuring stable growth and preventing risks, hold all parties truly accountable, and resolve and mitigate potential risks prudently, with a view to defending the bottom line that no systemic financial risk should occur and doing our utmost to protect the legitimate rights and interests of the people.