Executive Summary
Since the beginning of 2024, under the strong leadership of the CPC Central Committee with Comrade Xi Jinping at its core, China strengthened macroeconomic regulation and control to consolidate and enhance the upward trend of economic recovery. Bolstered by increased positive factors, continuously enhanced momentum, and improved social expectations, high-quality development achieved solid progress and economic performance was characterized by fast growth, an improved structure as well as higher quality and efficiency. The national economy made a good start in Q1, with the GDP growing 5.3 percent year on year and the CPI rising back into positive territory on a year-on-year basis. Following the guidance of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, the People’s Bank of China (PBOC) resolutely implemented the decisions and arrangements of the CPC Central Committee and the State Council. It strengthened counter-cyclical adjustments and pursued a prudent monetary policy in a flexible, moderate, precise, and effective manner, thereby providing a sound monetary and financial environment for economic recovery.
First, liquidity remained adequate at a reasonable level. The required reserve ratio (RRR) was cut by 0.5 percentage points at the beginning of 2024, releasing over RMB1 trillion of medium- and long-term funds. In addition, the PBOC used a mix of tools, including open market operations (OMOs), medium-term lending facility (MLF) operations, and central bank lending and discounts, to keep liquidity adequate at a reasonable level. It also guided financial institutions toward more balanced credit disbursement so as to ensure stable and sustainable financial support for the economy. Second, financing costs remained stable with a downward trend. The PBOC cut the interest rate on central bank lending for rural development, the interest rate on central bank lending for micro and small businesses (MSBs) and the central bank discount rate by 0.25 percentage points, respectively. It continued to promote the market-based reform of the deposit rate. In February, it guided the over-five-year loan prime rate (LPR) to move down by 0.25 percentage points. Third, the credit structure was improved. The PBOC launched RMB500billion of central bank lending for sci-tech innovation and technological transformation, lowered the threshold for access to inclusive MSB loans, and expanded the list of financial institutions eligible for the carbon emission reduction facility (CERF) in a bid to develop technology finance, green finance, inclusive finance, old-age finance, and digital finance. Fourth, the exchange rate remained basically stable. Upholding the decisive role of the market in exchange rate formation, the PBOC gave play to the role of the exchange rate in adjusting the macro economy and the balance of payments, strengthened expectation guidance, and prevented the risk of exchange rate overshooting. Fifth, risk prevention and resolution were strengthened. 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.
The effects of the monetary policy were gradually felt. Aggregate financing grew steadily. At end-March, outstanding aggregate financing to the real economy (AFRE) and broad money (M2) recorded year-on-year growth of 8.7 percent and 8.3 percent, respectively. New RMB loans registered RMB9.5 trillion in Q1. The credit structure continued to improve. At end-March, inclusive MSB loans and medium and long-term (MLT) loans to the manufacturing sector grew by 20.3 percent and 26.5 percent year on year, respectively, and loans to the private sector grew by 10.7 percent year on year, all of which outpaced overall loan growth. Financing costs were stable with a slight decline. In March, the weighted average rate on new corporate loans registered 3.73 percent, down 0.22 percentage points year on year. The RMB exchange rate fluctuated slightly against the US dollar and remained stable with an upward trend against a basket of currencies. At end-March, the China Foreign Exchange Trade System (CFETS) RMB Index rose by 2.4 percent from the end of 2023.
Currently, China’s economic development faces both strategic opportunities and risks and challenges. As the economic recovery momentum diverges across the globe and uncertainties, such as monetary policy shifts in the developed economies and geopolitical conflicts, remain, China needs to overcome quite a number of challenges to achieve sustained economic recovery. However, it should also be noted that the Chinese economy boasts a solid foundation, multiple advantages, and strong resilience, and its performance features a good start and an upward trend. Therefore, we need to enhance confidence in doing a good job in economic work. During the next stage, under the guidance of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, the PBOC will fully implement the spirit of the 20th National Congress of the CPC, the Central Economic Work Conference, the Central Financial Work Conference, and the National Two Sessions. It will adhere to the general principle of seeking progress while maintaining stability, and it will apply the new development philosophy fully, faithfully, and comprehensively. Firmly following the path of financial development with Chinese characteristics, the PBOC will speed up efforts to build China into a financial powerhouse, develop a modern central banking system, and work hard to promote high-quality development. Maintaining prudence of monetary policies and enhancing consistency in the macroeconomic policy orientation, the PBOC will strengthen counter-cyclical and inter-temporal adjustments, and it will enhance support for the real economy in a bid to consolidate and reinforce the upward economic recovery trend.
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, the PBOC will guide reasonable growth and a balanced provision of credit. By doing so, it will keep liquidity adequate at a reasonable level and keep aggregate financing and money supply stay in step with projected economic growth and CPI increase. Maintaining price stability and promoting moderate price recovery will be an important consideration for the implementation of monetary policy. The PBOC will enhance policy coordination to keep prices at a reasonable level. By continuing to deepen the market-oriented interest rate reform and giving play to the role of the LPR reform and the mechanism for market-oriented deposit rate adjustments, it will promote the costs for business financing and for consumer credit to remain stable with a downward trend. Implementing policies in a targeted, appropriate, and flexible way, the PBOC will provide effective support for key areas and weak links, such as inclusive finance, sci-tech innovation, and green development. It will smooth the transmission mechanism of monetary policy and avoid accumulation and idle transfer of funds. Pursuing a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies, the PBOC will let the market play a decisive role in the formation of the exchange rate. It will take a holistic approach in policy implementation and it will stabilize expectations. It will firmly correct pro-cyclical activities so as to prevent market expectations from becoming unanimously one-sided and self-reinforced, and it will firmly prevent risks arising from exchange rate overshooting so as to keep the RMB exchange rate basically stable at an adaptive and equilibrium 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.
