MNI China Press Digest March 20: RRR Cut, PBOC, Spillover Risk

Highlights from Chinese press reports on Monday:

• China’s central banks’ decision to cut the reserve requirement ratio (RRR) last week was not linked to the recent collapse of SVB, but was a proactive policy change to consolidate the economic recovery, according to Guan Tao, former director of State Administration of Foreign Exchange (SAFE). Guan noted a RRR cut was under discussion before the Two Sessions meeting, and although the adjustment was earlier than many had anticipated, the adjustment was made at a reasonable time based on China's economic conditions. The SVB issue was caused by rising U.S. interest rates, which is the opposite monetary policy posture to China. However, Beijing needs to be aware that both financial systems have uneven liquidity distribution between large and small banks.
• The SVB collapse has created uncertainty about the direction of monetary policy globally, as keeping rates high will fight inflation but will increases stresses in the banking sector, according to People's Bank of China (PBOC) Deputy Governor Xuan Changneng. Speaking to CCTV state broadcaster, Xuan said the recent turmoil shows the rapid adjustment of monetary policy in major developed economies has spill-over effects internally and externally. In the current complex environment, the opening-up, stability and development of the Chinese market provides diversified opportunities for foreign investors, and the safe-haven attributes of China's financial assets will become more prominent going forward.
• China is ready to work with partners to bring stability to the international financial system and defuse systemic risks, according to Lou Jiwei, China’s former finance minister. Speaking at a forum, Lou said the SVB collapse could bring a new round of instability that spills over into emerging markets. Following the Two Sessions, China is attaching even greater importance to preventing financial risk, through establishing a new regulatory body and central commission, he said. (Source: Global Times)