Executive Summary
The year 2023 marked a turning point in economic recovery and development following three years of COVID-19 prevention and control, and it was also the first year of the new administration. Under the strong leadership of the CPC Central Committee with Comrade Xi Jinping at its core, China strengthened macroeconomic regulation and control against external pressures and internal difficulties. The national economy showed signs of recovery, with GDP growing 5.2 percent year on year. The year also witnessed remarkable achievements in transformation and upgrading as well as solid progress in high-quality development. Following the guidance of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, the People's Bank of China (PBOC) fully implemented the spirit of the 20th CPC National Congress and conscientiously implemented the decisions and arrangements of the CPC Central Committee and the State Council. It pursued a prudent monetary policy in a targeted and effective manner, strengthened counter-cyclical adjustments as appropriate, and coordinated the relationships between aggregate and structure, quantity and price, as well as internal and external equilibria, thereby providing solid support for development of the real economy.
First, money and credit support was strengthened to bolster the economy. The required reserve ratio (RRR) was cut twice in 2023, releasing over RMB1 trillion of long-term funds. The maturing medium-term lending facility (MLF) loans were rolled over with a higher injection of liquidity, and the operations injected a total of RMB2.5 trillion into the market. With flexible open market operations (OMOs), the PBOC kept a reasonable and sufficient liquidity level. It also held meetings with financial institutions to guide them in maintaining a moderate credit aggregate and a steady pace of credit disbursement so as to enhance the stability and the sustainability of credit growth. Second, financing costs were lowered to stimulate effective demand. The policy rate was lowered twice, and the cuts brought down market rates such as the loan prime rate (LPR). The mechanism for market-oriented adjustments of deposit rates continued to play a role, and bank liability costs were stabilized. Housing credit policies were adjusted and improved, and commercial banks were guided to lower rates on existing first-home loans in an orderly manner. Third, the supply of funds was improved to promote a structural transformation. The PBOC rolled out guidance documents to encourage financial support for private enterprises and it also implemented the action plan to support the financing of technology-based enterprises. In addition, it increased central bank lending quotas for agricultural development and for micro and small businesses (MSBs) by RMB250 billion, continued implementation of inclusive MSB loan facilities and the carbon emission reduction facility (CERF), and increased the quotas for pledged supplementary lending (PSL) by RMB500 billion, thereby channeling more financial resources into major strategies, key areas, and weak links. Fourth, the RMB exchange rate was stabilized while internal and external equilibria were maintained. While deepening the market-oriented reform of the exchange rate, the PBOC raised the macro-prudential adjustment parameter for cross-border financing and cut the RRR for foreign currency deposits as appropriate. Giving play to the role of the foreign exchange market self-disciplinary mechanism, it strengthened expectation guidance and adjusted supply and demand in the foreign exchange market, thus keeping the RMB exchange rate basically stable at a reasonable and balanced level. Fifth, financial risks in key areas were handled to safeguard financial stability. The PBOC intensified financial risk monitoring and assessment and appropriately handled risks in key areas and with key institutions. The work of providing financial support to help resolve the debt risks of financing platforms was promoted in an orderly way, and development of a financial stability guarantee system was stepped up.
Overall, pursuing the principle of seeking progress while giving top priority to stability, the monetary policy created a prudent monetary and financial environment for economic recovery in 2023. Money and credit maintained reasonable growth. At end-2023, outstanding RMB loans reached RMB237.6 trillion, and broad money (M2) and outstanding aggregate financing to the real economy (AFRE) recorded year-on-year growth of 9.7 percent and 9.5 percent, respectively. In 2023, new RMB loans registered RMB22.7 trillion, RMB1.3 trillion more than the amount in 2022. The credit structure continued to improve. At end-2023, inclusive MSB loans and medium and long-term (MLT) loans to the manufacturing sector grew by 23.5 percent and 31.9 percent year on year, respectively. Loans to private enterprises grew by 12.6 percent year on year, an acceleration of 1.6 percentage points from end-2022. Social financing costs were stable with a downward trend. In December, the weighted average rate on new corporate loans registered 3.75 percent, down 0.22 percentage points year on year and continuing to hit a record low; the weighted average rate on personal housing loans registered 3.97 percent, down 0.29 percentage points year on year. Over RMB23 trillion of existing first-home mortgages witnessed a rate decline averaging 0.73 percentage points, which resulted in a reduction in interest payments by RMB170 billion for borrowers. Floating in both directions with more convergent expectations, the RMB exchange rate remained basically stable. It closed at 7.0920 against the US dollar at end-2023, an appreciation of over 3 percent from the trough during this round of fluctuations.
China is still in an important period of strategic opportunity for development. Economic development is well underpinned by a broad market, a fairly complete industrial system, a strong material and technological foundation, and increasing dividends from talent. However, it should also be noted that further economic recovery will require efforts to overcome some difficulties and challenges, in light of the uneven global economic recovery momentum as well as the rising uncertainties, such as the policy adjustments in the developed economies and geopolitical conflicts. From a holistic perspective, the favorable conditions for China's development outweigh the unfavorable ones, and the overall trend of economic recovery and long-term improvement remains unchanged. Confidence and determination must be boosted. During the next stage, under the guidance of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, the PBOC will apply the new development philosophy fully, faithfully, and comprehensively, and it will adhere to the general principle of seeking progress while maintaining stability, promoting stability through progress, and establishing the new before abolishing the old. It will speed up efforts to build China into a financial powerhouse, improve financial services, firmly follow the path of financial development with Chinese characteristics, and promote high-quality development of the financial sector. The PBOC will develop a modern central banking system and strengthen counter-cyclical and inter-temporal adjustments to macro policies, with serving the real economy as the fundamental purpose of the financial sector. Maintaining prudence of monetary policies and enhancing consistency in the macroeconomic policy orientation, it will continue to effectively upgrade and appropriately expand economic output.
Prudent monetary policies will be flexible,moderate, precise, and effective. Based on a rational understanding of the relationship between the two largest financing markets, namely, the bond market and the credit market, as well as an appropriate grasp of the patterns and new features of money and credit supply and demand, the PBOC will guide a reasonable growth and a balanced provision of credit. By doing so, it will keep a reasonable and sufficient liquidity level that matches the growth of AFRE and the money supply with the expected targets for economic growth and price levels. It will enhance policy coordination and effectively support the initiative to boost consumption, stabilize investment, and expand domestic demand so as to keep prices at a reasonable level. By continuing to deepen the market-oriented interest rate reform, further improving the LPR formation mechanism, and leveraging the role of the mechanism for market-oriented deposit rate adjustments, it will promote overall social financing costs to remain stable with a downward trend. The PBOC will give play to the role of the monetary policy toolkit in adjusting both the aggregate and the structure. It will support the use of debt restructuring and other methods to activate existing stocks so as to improve efficiency in using existing loans. Implementing policies in a targeted, appropriate, and flexible way, the PBOC will work to develop technology finance, green finance, inclusive finance, pension finance, and digital finance. The 25 measures encouraging financial support for the private economy will continue to be implemented, and more financial support will be provided for the development of government-subsidized housing projects, the construction of public infrastructures for both daily and emergency uses, and the rebuilding of run-down urban areas. Pursuing a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies, the PBOC will take a holistic approach in policy implementation and stabilize expectations, and it will prevent risks arising from exchange rate overshooting and prevent expectations from becoming unanimously one-sided and self-reinforced so as to keep the RMB exchange rate basically stable at a reasonable and balanced level. The PBOC will continue its efforts to effectively prevent and resolve risks in key areas, thereby firmly defending the bottom line whereby no systemic financial risks will occur.
