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REPEAT: MNI Policy: China Regulator Warns Off Large Cap Flow

Repeats Story Initially Transmitted at 14:59 GMT May 25/10:59 EST May 25
     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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