Monetary Policy Coordination
Haizhou HUANG
The Second CF40-PIIE China Economic Forum
Washington DC
October 5, 2016
2 nd Annual CF40-PIIE China Economic Forum
US and Euro Area
Slow growth, deleveraging, financial risks and low
interest rates
2
US deleverage
Source: Haver Analytics, CICC Research
40
60
80
100
120
19
90
Q1
19
91
Q1
19
92
Q1
19
93
Q1
19
94
Q1
19
95
Q1
19
96
Q1
19
97
Q1
19
98
Q1
19
99
Q1
20
00
Q1
20
01
Q1
20
02
Q1
20
03
Q1
20
04
Q1
20
05
Q1
20
06
Q1
20
07
Q1
20
08
Q1
20
09
Q1
20
10
Q1
20
11
Q1
20
12
Q1
20
13
Q1
20
14
Q1
20
15
Q1
20
16
Q1
Financial Institutions Household Government Non-financial Business
US Debt/GDP, %
3
US Monetary policy
Source: Bloomberg, CICC Research
0
3
6
9
Jan-9
1
Jan-9
2
Jan-9
3
Jan-9
4
Jan-9
5
Jan-9
6
Jan-9
7
Jan-9
8
Jan-9
9
Jan-0
0
Jan-0
1
Jan-0
2
Jan-0
3
Jan-0
4
Jan-0
5
Jan-0
6
Jan-0
7
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Jan-1
4
Jan-1
5
Jan-1
6
Fed funds rate target US 10-year treasury yield%
4
US Fiscal policy: expansion capped by statutory debt
limit
Source: Bloomberg, CICC Research
4
8
12
16
20
Jan-0
1
Aug-0
1
Mar-
02
Oct-
02
May-0
3
Dec-0
3
Jul-04
Fe
b-0
5
Sep-0
5
Apr-
06
Nov-0
6
Jun-0
7
Jan-0
8
Aug-0
8
Mar-
09
Oct-
09
May-1
0
Dec-1
0
Jul-11
Fe
b-1
2
Sep-1
2
Apr-
13
Nov-1
3
Jun-1
4
Jan-1
5
Aug-1
5
Mar-
16
US public debt subject to limit US statutory debt limitUS$trn
5
Valuation of US equities: stretched?
Source: Robert Shiller, CICC Research
Average=16.7
+1 stdev = 23.3
-1 stdev = 10.1
0
5
10
15
20
25
30
35
40
45
50
1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Shiller's cyclically adjusted P/E
2000
1983
1929
1901
1921
2009
1966
1932
1937
6
Deleverage in Euro Area
Source: Haver Analytics, CICC Research
50
55
60
65
70
75
60
80
100
120
140
160
19
99
Q2
20
00
Q2
20
01
Q2
20
02
Q2
20
03
Q2
20
04
Q2
20
05
Q2
20
06
Q2
20
07
Q2
20
08
Q2
20
09
Q2
20
10
Q2
20
11
Q2
20
12
Q2
20
13
Q2
20
14
Q2
20
15
Q2
Financial Institutions Non-financial Corporations Government Household (RHS)
Euro Area Debt/GDP, %
7
Structural reforms in Euro Area are needed
Source: Wind, CEIC, CICC Research
0
5
10
15
20
25
30
2
5
8
11
14
Ja
n-0
0
Au
g-0
0
Ma
r-0
1
Oct-
01
Ma
y-0
2
De
c-0
2
Jul-
03
Fe
b-0
4
Se
p-0
4
Ap
r-0
5
No
v-0
5
Ju
n-0
6
Ja
n-0
7
Au
g-0
7
Ma
r-0
8
Oct-
08
Ma
y-0
9
De
c-0
9
Ju
l-1
0
Fe
b-1
1
Se
p-1
1
Ap
r-1
2
No
v-1
2
Ju
n-1
3
Ja
n-1
4
Au
g-1
4
Ma
r-1
5
Oct-
15
Ma
y-1
6
Eurozone Germany Italy Greece (RHS)Unemployment rate, %
8
Sovereign default risk in Euro Area: peripheral
countries’ risks are still relatively elevated
Source: Bloomberg, CICC Research
0
2
4
6
8
10
12
14
16
18
20
0.5
1.5
2.5
3.5
4.5
Jan-1
4
Mar-
14
May-1
4
Jul-14
Sep-1
4
Nov-1
4
Jan-1
5
Mar-
15
May-1
5
Jul-15
Sep-1
5
Nov-1
5
Jan-1
6
Mar-
16
May-1
6
Jul-16
Sep-1
6
Portugual Spain Italy Greece (RHS)10 year yield spread to German bunds, % (%)
9
Government debt in Euro Area: continued to
accumulate except for Germany
Source: Haver Analytics, CICC Research
20
50
80
110
140
170
200
Mar-
00
Oct-
00
May-0
1
Dec-0
1
Jul-
02
Fe
b-0
3
Sep-0
3
Apr-
04
Nov-0
4
Jun-0
5
Jan-0
6
Aug-0
6
Mar-
07
Oct-
07
May-0
8
Dec-0
8
Jul-
09
Fe
b-1
0
Sep-1
0
Apr-
11
Nov-1
1
Jun-1
2
Jan-1
3
Aug-1
3
Mar-
14
Oct-
14
May-1
5
Dec-1
5
Euro Area Germany Spain Greece ItalyGovernment debt/GDP, %
China
Deleveraging, financial risks and moderate growth
11
Financial leverage: various sectors continued
to leverage up in recent years
Source: CEIC, Haver, CICC Research
80
90
100
110
120
130
140
150
5
15
25
35
45
2007 2008 2009 2010 2011 2012 2013 2014 2015
Central Government Local Government
Household Financial Institutions
Non-financial Corporations (RHS)
China Debt/GDP, %
12
RMB still faces depreciation pressure
Source: Wind, Bloomberg, Haver, CICC Research
6.1
6.2
6.3
6.4
6.5
6.6
6.7
93
95
97
99
101
103
105
Aug-1
5
Sep-1
5
Oct-
15
Nov-1
5
De
c-1
5
Jan-1
6
Feb-1
6
Mar-
16
Apr-
16
May-1
6
Jun-1
6
Jul-16
Aug-1
6
Sep-1
6
CFETS basket
Spot USD/CNY rate, right scale
Dec 31 2014=100 USD/CNY
meansCNY depreciate
WoW: +0.3%CFETS
+0.1%USD/CNY WoW:
Sep. 19-23 Sep. 12-16
-0.2%
+0.0%
13
Rising property prices in certain cities
Source: Wind, Bloomberg, CICC Research
Beijing: 54.8
Shanghai: 49.3
Tianjin: 25.9
Chongqing: 9.1
Harbin: 8.5
Changchun: 7.3
Jilin: 6.3
Shenyang: 6.9
Yingkou: 4.9Anshan: 5.5
Hohhot: 6.4
Baotou: 4.8
Shijiazhuang: 10.3
Baoding: 8.3
Tangshan: 6.2
Handan: 5.8
Taiyuan: 8.8
Jinan: 9.3
Liaocheng: 4.7
Weifang: 4.8
Yantai: 7.3
Qingdao: 11.1
Zhengzhou: 10.3
Xi'An: 5.7
Baoji: 3.4
Lanzhou: 9.9
Yinchuan: 5.3
Xining: 7.1
Urumqi: 7.7
Hefei: 13.2
Wuhu: 6
Nanjing: 18.1
Lianyungang: 7.1
Xuzhou: 8
Hangzhou: 17.3
Ningbo: 10.4
Jinhua: 6.7
Wenzhou: 11.9Changsha: 4.7Xiangtan: 3.8
Zhuzhou: 3.9
Nanchang: 8.8
Ganzhou: 6.5
Wuhan: 10.8
Chengdu: 8.6
Guiyang: 7 Fuzhou: 15.4
Quanzhou: 8.3
Xiamen: 27.4
Guangzhou: 16.7Shantou: 10
Zhanjiang: 8.4
Haikou: 8
Nanning: 7.1
Guilin: 5.8
Liuzhou: 6.9Kunming: 6.9
Shenzhen: 35.9
Sanya: 13
Zhuhai: 13.6
Dongguan: 5.9
Dalian: 9.6
Property affordability ratio (August, 2016)
Note: 1. Affordability ratio = House price / Annual household disposal income2. Data for most cities are average prices of secondary transactions gathered from Fang.com; primary transaction prices are used if secondary transaction prices are not available; data for Beijing, Shanghai, Shenzhen, Guangzhou, Hangzhou, Nanjing and Tianjin are average prices for the city's core areas ; assume house size to be 90 sq.m3. Household disposal income = The city's disposal income per capita * average household size for the respective province; disposal income data are as of 2015 (assume disposal income to increase 10% per year if 2015's data is not available)
14
Estimated NPL: Rmb9.9~13.4trn or 9.1~12.3%
Source: CEIC, CICC Research
9,890.79.1%
5,187.14.8%
3,038.12.8%
1,531.61.4%
13,432.812.3%
5,321.04.9%
5,073.74.7%
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Potential NPLs NPLs recognized NPLs resolved NPLs that can beabsorbed with existing
resources
Remaining gap
(Rmb bn)
NPLs already resolved or can be absorbed by existing financial resourcesRmb8.4trn, or 7.7%
Potential NPLsRmb9.9~13.4trn or 9.1~12.3%
NPLs recognizedRmb5.2trn or 4.8%
Remaining gapRmb1.5~5.1trnor 1.4~4.7%
15
Interest rate is around historical low, but still
have downward room if needed
Source: CEIC, CICC Research
0
2
4
6
8
10One year deposit rate One year loan rate %
16
RRR is still relatively high in historical context
Source: CIEC, CICC Research
0
5
10
15
20
25 RRR: large depository institution
RRR: small and medium depository institution
RRR
%
17
Fiscal policy: China government’s leverage is
still low
Source: BIS, CICC Research
0
50
100
150
200
250
General government debt/GDP%
18
Fiscal policy: more efforts in fiscal expansion
via higher budget deficit this year in 2016
Source: CEIC, CICC Research
-594bn
-3,000
-2,500
-2,000
-1,500
-1,000
-500
0
500
1,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2015
2016 Jan - Jul
RMB bn Cumulative fiscal balance
indicatesfiscalloosening
RMB bn Cumulative fiscal balance
indicatesfiscalloosening
RMB bn Cumulative fiscal balance
indicatesfiscalloosening
RMB bn Cumulative fiscal balance
indicatesfiscalloosening
Global Monetary Policy Coordination
Declining interest rate, expanding central bank balance
sheet and historical lessons
20
Watching for negative interest rates
Source: Bloomberg, CICC Research
1-Year 2-Year 3-Year 4-Year 5-Year 6-Year 7-Year 8-Year 9-Year 10-Year 15-Year 20-Year 30-Year
Switzerland -0.93 -0.95 -0.97 -0.90 -0.85 -0.79 -0.73 -0.66 -0.59 -0.54 -0.30 -0.19 -0.05
Japan -0.28 -0.26 -0.26 -0.25 -0.24 -0.22 -0.22 -0.19 -0.14 -0.07 0.12 0.38 0.51
Germany -0.65 -0.70 -0.71 -0.68 -0.59 -0.56 -0.50 -0.41 -0.29 -0.14 -0.01 0.21 0.42
Netherlands -0.64 -0.67 -0.66 -0.65 -0.49 -0.50 -0.41 -0.28 -0.15 -0.03 0.49
Finland -0.63 -0.66 -0.64 -0.56 -0.53 -0.45 -0.37 -0.26 -0.17 -0.02 0.25 0.51
Austria -0.58 -0.62 -0.60 -0.55 -0.50 -0.45 -0.41 -0.36 -0.09 0.07 0.01 0.49 0.74
France -0.59 -0.64 -0.61 -0.55 -0.45 -0.37 -0.30 -0.12 0.02 0.17 0.46 0.74 0.96
Belgium -0.62 -0.64 -0.59 -0.58 -0.50 -0.45 -0.36 -0.21 -0.04 0.11 0.48 0.56 1.04
Sweden -0.74 -0.67 -0.55 -0.37 -0.23 -0.07 0.14 0.68 0.98
Denmark 0.05 -0.53 -0.15 -0.39 0.31 -0.23 -0.03 0.45
Ireland -0.47 -0.45 -0.44 -0.38 0.00 -0.24 -0.12 0.09 0.24 0.34 0.68 1.16
Spain -0.26 -0.20 -0.15 -0.03 0.05 0.13 0.29 0.58 0.74 0.90 1.28 2.03
Italy -0.21 -0.11 -0.01 0.05 0.25 0.42 0.60 0.81 1.02 1.20 1.55 1.84 2.25
United States 0.57 0.75 0.86 1.12 1.39 1.57 2.30
China 2.19 2.37 2.40 2.56 2.56 2.72 2.75 2.83 2.73 3.11 3.25
21
10 year US treasury yield is 1.57% now, the lowest
level in 226 years
Source: Robert Shiller, CICC Research
0
2
4
6
8
10
12
14
16
1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
10 year US treasury yield%
Global Monetary Base Dynamics: Long View
Since 1900, it is the second time of rapid expansion of balance sheet of the
central banks of developed countries in over 100 years since the financial
crisis in 2008, and the expansion is now slowly returning to the regular level.
The data is based on the
balance sheets of the central
banks of twelve countries:
Australia, Canada, Finland,
France, Germany, Italy,
Japan, Norway, Sweden,
Switzerland, the United
Kingdom and the United
States. The data after 1999
includes the balance sheet of
the European Central Bank.
The proportion of assets of central banks in GDP
22
23
Expanding Global Monetary Base: Short View
Source: Bloomberg, CICC Research Source: Bloomberg, CICC Research
Balance Sheet: Five central total asset as of %
GDP since 2008
Balance Sheet: Five central banks total asset
since 2008
0
200
400
600
800
Jan-0
0
Jan-0
1
Jan-0
2
Jan-0
3
Jan-0
4
Jan-0
5
Jan-0
6
Jan-0
7
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Jan-1
4
Jan-1
5
Jan-1
6
Fed ECB BOJ PBoC BOEIndex, Jan 2007=100
0%
20%
40%
60%
80%
Jan-0
0
Jan-0
1
Ja
n-0
2
Jan-0
3
Jan-0
4
Jan-0
5
Jan-0
6
Jan-0
7
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Jan-1
4
Jan-1
5
Jan-1
6
Fed ECB BoJ BOE PBoCCentral bank total asset/GDP
24
Source: Bloomberg, CICC Research
Global coordination:
Plaza and Louvre Accords
0%
5%
10%
15%
20%
25%
Jan-7
1
Sep-7
1
May-7
2
Jan-7
3
Sep-7
3
May-7
4
Jan-7
5
Sep-7
5
May-7
6
Jan-7
7
Sep-7
7
May-7
8
Jan-7
9
Sep-7
9
May-8
0
Jan-8
1
Sep-8
1
May-8
2
Jan-8
3
Sep-8
3
May-8
4
Jan-8
5
Sep-8
5
May-8
6
Jan-8
7
Sep-8
7
May-8
8
Jan-8
9
US CPI YoY Fed Funds Rate
Volcker tightened monetary policy to fight against hyperinflation
Rethinking Paradigm and Drawing Blueprint
• Where are we in transition
– 1930s to 1945?
– 1970s to 1985?
– 2010s to when?
• What paradigm/anchor to switch to
– USD in Bretton Woods: BWI
– G5 + Free float exchange rate + Inflation Targeting: BWII
– Key ADs + Key EMs coalition; adopting multi objectives
(inflation, and growth and financial stability?): BWIII
25