SCIO briefing on 2016 Govt Work Report

China Economic Information Service, Xinhua News Agency:

I have two questions. Firstly, in 2015, China’s gross value of imports and exports dropped by 7 percent from the previous year during the same period, and this January, it continued to slip. The government work report mentions one of the targets this year is to make a stable recovery in imports and exports. Why does it not set a target value? Secondly, the report mentions financial innovation such as the launch of the coordinated investment and loan pilot project and the encouragement of financial agencies to promote consumer credit product innovation. My question is how do we prevent possible financial risk during the process, and is there any detailed arrangement? Thanks.

Huang Shouhong:

Premier Li frankly reported that last year’s task for imports and exports was not completed. Several days ago, a website listed China’s 26 targets during last year, of which 25 had been completed, and only that of imports and exports had not been completed. Last year’s target for import and export growth was 6 percent. Frankly speaking, why was the target set? Firstly, the value of the year before the last was relatively low. Secondly, during the period of last year’s “two sessions,” China’s imports and exports were maintaining growing momentum. However, there was a sudden change in the situation. World trade continued to slip. In particular, the price of major commodities fell off sharply. Because of China’s great integration into the global economy, China could not expect to be immune from the world trade slowdown. The declines in global commodity prices resulted in the decline in the value of China’s imports and exports. You mentioned just now that trade in goods dropped 7 percent, while the target for growth was put at 6 percent. That is largely due to the changing international environment.

Now, the trend in the world trade situation is very changeable. Data shows that the global trade has recorded a slowdown for a long time, while China’s export shares have continued growing in the world. According to the data from the Ministry of Commerce and a few international organizations, China’s exports accounted for more than 13 percent of the world’s total last year, increasing about 1 percentage point from 12.3 percent in the year before last. Although our task was completed, we still did a better job than the other parts of the world. In particular, the export product mix has been improved. The exports of general trade, service trade and high-tech products have been growing faster than before.

China’s import value has fallen dramatically, but the quantity of imports has increased. To cite a few examples, the amount of imported oil was 3.3 trillion tons during last year, up 8.8 percent; iron ore was 950 million tons, up 2.2 percent; grain and flour were over 32 million tons, up 67.7 percent; soybean was 81.69 million tons, up 14.4 percent. China’s quantity of major commodities grew, but the price of these commodities at the global market dropped off sharply, as crude oil prices went down 40 percent and some goods went even lower, down 50 to 60 percent, which caused the import value to drop dramatically.

There were some voices accusing China of crippling the global economy last year. I’d say they have come to the wrong conclusion. It depends on how you analyze the problem. As for international bulk commodity prices, although China’s imports of crude oil and iron ore increased rapidly last year, international prices of both commodities still kept falling drastically. So it’s wrong to blame this on China.

For another example, the international stock and foreign exchange markets fluctuated wildly during 2015. Opinions are divided among Chinese and international media as to whether China should be held responsible for this. What then happened during the Chinese Spring Festival provides good evidence against the latter view. While the Chinese markets closed during the national holiday, the global financial market suffered an extremely sharp fluctuation. China had nothing to do with this. And any accusation along these lines is hype not reality.

In fact, China is by no means a burden on global economic growth. Instead, it serves as a main contributor. In 2015, China's contribution to the world economy was 25% of the total (or 28%, according to International Monetary Fund and World Bank). Ignoring this small discrepancy, the figure indicates that China’s economy is an effective driving force of global growth.

Secondly, as for financial innovation, the big question is how to prevent risk. It’s a question of great social concern and one that is faced by each country around world under the impact of a global economic recession. China is no exception. China has strong risk prevention and control management and its overall financial situation is sound, although overuse of some financial tools might bring some risks. In general, China’s financial risk is not as high as is being analyzed overseas. Recently, official statistics show that China’s non-performing loan (NPL) ratio rose to 1.67% on January, with an increase of more than 400 billion yuan over last year. The figures aroused wide concern overseas about the real level of Chinese financial risk; however, the situation is not that bad. The central government and the State Council attach great importance to financial risk prevention. China’s financial regulatory sectors have applied various measures; banks and financial institutions have also made full preparation. For instance, as the NPL ratio rose last year, the loan reserve requirement of Chinese commercial banks reached 2.3 trillion yuan and the provision coverage ratio reached 181%. That means, for each yuan of bad loans, the banks prepare 1.81 yuan as charge against it. In general, China has brought its financial risk level under control. Of course, in some ways, we should pay attention to the rapidly increasing leverage ratio and take some prevention measures. Thank you.

Hu Kaihong:

That’s all for today's press conference. Thank you, Mr. Huang, Mr. Liu, and our friends from the press.