China makes new push to take yuan global, vows vigilance against financial risks

SHANGHAI: China announced fresh measures on Wednesday to promote the global use of the yuan and unveiled plans to better manage domestic money market liquidity.

Pan Gongsheng, governor of the People’s Bank of China (PBOC), said six banks have been authorised to conduct offshore yuan transactions in the Shanghai free trade zone, a move aimed at promoting offshore yuan business in the city.

Pan also said at the annual Lujiazui Forum in Shanghai that the PBOC will create a tool that would enable overseas central banks, sovereign wealth funds and international financial organisations to obtain yuan liquidity more easily.

China is stepping up yuan internationalisation efforts, in a bid to reduce its dependence on a global payment system dominated by the US dollar.

Pan’s speech came a day after the PBOC’s digital yuan operation centre signed direct participant agreements with 26 financial institutions in Shanghai to promote the global adoption of the digital currency, also known as e-CNY.

Soon after Pan’s speech, the PBOC announced the rollout of an instrument that would provide yuan liquidity to qualified overseas monetary authorities.

In the domestic money market, Pan said China will increase the variety of overnight reverse repo operations to better manage liquidity.

Commenting on China’s decelerating loan growth, Pan said that “it’s difficult and unnecessary for China’s credit growth to maintain its previous pace.”

Preventing systemic risks

At the same event, China’s top banking regulator vowed to prevent systemic financial risk and channel resources to emerging industries, as the country undergoes a painful economic restructuring.

Ding Xiangqun, newly appointed head of the National Financial Regulatory Administration, expressed confidence that regulators will prevent risk from small financial institutions and resolve risk from real estate and local government debt.

“In recent years, cross-border transmission and cross-market spread of financial risks have become increasingly pronounced,” Ding told the annual Lujiazui Forum in Shanghai.

Regulators will “encourage institutions to raise capital through multiple channels to enhance their risk resilience,” Ding said.

China’s economy is witnessing increasing imbalance, with consumption weak and the property sector struggling, but investment is hot in emerging sectors such as robotics and AI.

Reflecting the two-speed economy, China’s retail sales in May fell for the first time in over three years and investment slumped, while industrial output picked up pace.

Ding said regulators will guide financial resources to emerging and future industries, and step up regulatory cooperation in emerging areas.

Authorities will also crack down on disorderly competition and prevent illegal financial activities, Ding said.