MNI Policy: China Regulator Warns Must Monitor Large Cap Flow

     BEIJING (MNI) - China must be on guard for possible large capital "inflow

and outflow" when pushing forward opening up of the financial industry, keep hot

money from speculation and resolutely prevent excessive bubbles in the property

and financial assets, Guo Shuqing, the chairman of the China Banking and

Insurance Regulatory Commission and the party chief of the People's Bank of

China, said in a prepared speech Tsinghua PBCSF Global Finance Forum in Beijing

on Saturday. 

     Here are the main takeaways from Guo's speech, which was read by his

spokesman:

     -- Those who speculate and short the yuan in the long run will suffer huge

losses given China's growth potential, even as short-term volatilities are

normal. China didn't seek export advantage by devaluating its currency, and the

depreciation of the yuan in May against the dollar was due to the market

reacting to the U.S. escalating the trade conflict. 

     -- China will continue to deepen market-oriented reform of the yuan

exchange rate formation mechanism and improve the flexibility of the yuan. The

government is trying to strike a balance between flexibility and stability of

the yuan, and the effort has been recognized by the international community. 

     -- Escalating the trade conflict cannot resolve issues but will only hurt

the U.S itself and the world. Even if the U.S imposed the tariff to the maximal

level on Chinese imports, China will only sustain limited impact given most

exports to the U.S. could be absorbed by the domestic market. Chinese goods are

welcomed by markets outside the U.S. as the Belt and Road Initiative takes

effect and part of the exports to the U.S. continues as buyers cannot find

replacement in the short term. 

     -- China's financial markets overreacted to the trade conflict in 2018 and

has become more resilient. 

     -- The U.S. suffers as a result of the trade war as its companies and

customers pay the higher costs. The trade conflict will shock and depress

dollar-dominated global financial markets that the U.S. highly depends on, given

its massive overseas assets and debt. 

     -- There is a large room for China to further open up its financial

markets, given that foreign investment takes only 2% of the A-share market

value, while the proportion is 2.9% for bond market, 1.6% for banking assets and

5.8% for the insurance sector. China welcomes international institutions with

good credit standing and reputation. 

     -- China should prioritize tackling domestic problems, including addressing

an aging population, improving environmental protection, making wealth

distribution fairer, balancing regional growth and improving innovation

capability.

--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

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