Recently, the People’s Bank of China (PBOC) released the China Financial Stability Report (2024). The Report notes that in 2023, against the backdrop of an extremely complex international environment and in the face of the arduous task of pressing ahead with reform and development while ensuring stability, China effectively navigated through the domestic and international situations, coordinated COVID-19 containment and social and economic development, and struck a balance between development and security, successfully achieving annual economic and social development goals. China’s economy, on the whole, gained momentum in recovery, and reform and opening-up were further advanced, while the foundation for secure development was consolidated. The gross domestic product (GDP) exceeded RMB126 trillion, a year-on-year increase of 5.2 percent. The employment situation was generally stable, the balance of payments remained basically balanced, the RMB exchange rate remained stable at an adaptive and equilibrium level and the financial system operated steadily overall.
The Report made it clear that the financial system firmly upheld the centralized and unified leadership of the Central Committee of the Communist Party of China (CPC) over the financial work, fully implemented the guidelines of the Central Economic Work Conference and the Central Financial Work Conference, and conscientiously implemented the decisions and arrangements made by the CPC Central Committee and the State Council. It adhered to the general principle of pursuing progress while ensuring stability, remained committed to the foundational mission of aligning financial services with the real economy, and took risk prevention and control as the eternal theme of the financial work. Prominent risks in key areas were properly dealt with, the system upholding financial stability was improved, and the overall financial stability was effectively safeguarded. First, the financial system provided solid support for the continuous recovery of the real economy. In 2023, the PBOC lowered the required reserve ratio (RRR) twice for financial institutions by a total of 0.5 percentage points, injecting medium and long-term (MLT) funds exceeding RMB1 trillion. The policy rate was lowered twice, bringing down the market interest rates on a continuous basis. The role of structural monetary policy instruments was brought into play. Outstanding inclusive micro and small business (MSB) loans, MLT loans to the manufacturing sector, and loans to the high-tech manufacturing sector all witnessed year-on-year growth rates higher than the growth in total loans. Second, the smooth functioning of the real estate market was supported in a comprehensive manner. On the supply side, the applicable terms of policies such as “16 Financial Measures” were extended to meet the reasonable financing needs of real estate enterprises regardless of their ownership types. The quota of pledged supplementary lending (PSL) funds was increased by RMB500 billion to ramp up financial support for the construction of government-subsidized housing, the rebuilding of run-down urban areas, and the construction of infrastructure for both normal and emergency use. On the demand side, the financial system lowered the down payment ratios and the interest rate floors for personal mortgage loans. It also cooperated with relevant departments to optimize the standards for identifying the number of housing units, and reduced interest rates on existing first-home mortgage loans. Third, coordinated efforts were made to provide financial support for mitigating debt risks related to financing vehicles. Efforts were made to advance the establishment of a working mechanism for debt eliminating to implement policy measures for forestalling and defusing the debt risks related to financing vehicles. Based on market principles and the rule of law, financial institutions were guided to support defusing existing debt risks and strictly controlling the build-up of new debts in compliance with laws and regulations. Fourth, efforts were made to defuse the risks faced by small and medium-sized financial institutions. Measures were taken to identify and dispose of non-performing assets in the banking sector. Reform and risk mitigation in key areas and institutions were promoted and risk resolution plans were formulated and improved. Additionally, a hierarchical and segmented framework for bank risk monitoring, early warning and early corrections with hard constraints was developed. High-risk financial institutions were disposed of in a prudent and orderly manner. Fifth, external shock risks were effectively addressed. The monitoring, early warning and response mechanism for cross-border capital flows was improved to prevent cross-market and cross-border risk spillovers. Macro-prudential adjustment parameter for cross-border financing was raised, the foreign exchange RRR was lowered, and the foreign exchange supply and demand were better balanced. Measures were also taken to prevent the risks of exchange rate overshooting, and a basic equilibrium was maintained in the balance of payments. Sixth, the system safeguarding financial stability was reinforced. The legislative process of the Financial Stability Law was accelerated and resources for risk resolution were reinforced. Efforts were made to give full play to the role of deposit insurance, encourage prudent operation of insured institutions, and strongly support risk resolution in key areas and key institutions. Overall, the work on financial risk prevention and control was advanced with solid achievements in defusing risks with precision, reform and risk mitigation, early prevention of possible risks, and establishment of mechanisms to improve weak links. The financial system generally witnessed smooth operation, and financial risks were constrained and remained under control.
Looking forward, as China’s economic foundation is solid, with multiple advantages, strong resilience, and immense potential, the supporting conditions and basic trends for its sound economic growth over the long run will remain unchanged. Under the guidance of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, the financial system will fully implement the guidelines of the 20th CPC National Congress and the second and third plenary sessions of the 20th CPC Central Committee, and conscientiously implement the decisions and arrangements made by the Central Economic Work Conference and the Central Financial Work Conference. Upholding the general principle of pursuing progress while ensuring stability, it will apply the new development philosophy fully, faithfully, and comprehensively, better coordinate development and security, and implement more proactive macro policies. The financial system will implement appropriately accommodative monetary policies, and use a mix of monetary policy tools to keep liquidity adequate at a reasonable level, thus ensuring that the aggregate financing to the real economy (AFRE) and the money supply are in line with the economic growth and the expected price level. It will enhance the resilience of the foreign exchange market, stabilize market expectations and keep the RMB exchange rate basically stable at an adaptive level. It will intensify support for the key areas and weak links in high-quality development, and make significant efforts in the areas of technology finance, green finance, inclusive finance, old-age finance, and digital finance. It will work to improve the system upholding financial stability, and strengthen prevention, monitoring and early warning of the sources of financial risks to ensure early identification, warning, exposure and resolution of risks. It will also establish a risk resolution mechanism with well-aligned responsibilities and rights, compatible incentives and constraints, and reasonable cost sharing. It will expand the Deposit Insurance Fund and protection funds in the other sectors as well as the Financial Stability Fund, give full play to the role of industry protection funds in line with market principles and the rule of law, and tap into the specialized risk resolution function of deposit insurance. It will forestall and defuse financial risks in key areas in a prudent and effective manner, and firmly defend the bottom line whereby no systemic risks will occur.
