Executive Summary
Since the beginning of 2024, under the strong leadership of the CPC Central Committee with Comrade Xi Jinping at its core, China has strengthened macro regulation and control while focusing on deepening reform and opening-up, expanding domestic demand, and optimizing the economic structure. As a result, overall economic performance has been stable. In the first three quarters, the GDP grew 4.8 percent year on year and the CPI rose 0.3 percent year on year. Production and demand increased steadily, employment and prices remained generally stable, and high-quality development achieved solid progress. Following the guidance of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, the People’s Bank of China (PBOC) earnestly implemented the decisions and arrangements of the CPC Central Committee and the State Council. It pursued a sound monetary policy in a flexible, moderate, precise, and effective manner, and it strengthened counter-cyclical adjustments, thereby creating a favorable monetary and financial environment for economic recovery and development.
First, money and credit maintained reasonable growth. The PBOC cut the required reserve ratio (RRR) by a total of one percentage point in February and September, thus releasing about RMB2 trillion of long-term liquidity. In addition, it used a mix of tools, including open market operations (OMOs), medium-term lending facility (MLF) operations, and central bank lending and discounts, and it conducted government bond transactions, to keep liquidity adequate at a reasonable level. It promoted a balanced supply of credit and mobilized the existing low-efficient financial resources to improve the quality and efficiency of financial services for the real economy. Second, overall social 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 in January, and it cut the 7-day reverse repo rate by a total of 0.3 percentage points in July and September. It continued to promote the market-based reform of the deposit rate and guided market rates, including the loan prime rate (LPR), to move down. Third, the credit structure was improved. The PBOC launched new policies to bolster the real estate market. It lowered the interest rate on existing mortgage loans, unified the minimum down payment ratio for first- and second-home buyers, and it improved central bank lending for government-subsidized housing. It launched the Securities, Funds, and Insurance Companies Swap Facility (SFISF) as well as central bank lending for share buybacks and shareholding increases to support stable development of the stock market. It pressed ahead with the use of central bank lending for sci-tech innovation and technological transformation, and it intensified financial support for large-scale equipment renewal and trade-in of consumer goods. It lowered the threshold for access to inclusive MSB loans and expanded the list of financial institutions eligible for the Carbon Emission Reduction Facility (CERF), making good use of the existing structural monetary policy tools. Fourth, the exchange rate remained basically stable. Upholding the decisive role of the market in the formation of the exchange rate, the PBOC gave play to the role of the exchange rate in adjusting the macro economy and the balance of payments, maintained exchange rate flexibility, and strengthened expectation guidance. Fifth, risk prevention and resolution were strengthened. The PBOC improved financial risk monitoring and assessment, and it appropriately handled the risks in key areas and with key projects. The work of providing financial support to help resolve the debt risks of local government financing vehicles was promoted in an orderly way, and development of a financial stability guarantee system was stepped up.
Overall, since the beginning of 2024, the monetary policy stance has been accommodative, providing strong support for economic recovery and development. The financial aggregates witnessed reasonable growth. At end-September, outstanding aggregate financing to the real economy (AFRE) and broad money supply (M2) recorded year-on-year growth of 8.0 percent and 6.8 percent, respectively. In the first three quarters, new RMB-denominated loans registered RMB16 trillion. The credit structure continued to improve. At end-September, inclusive MSB loans and medium- and long-term (MLT) loans to the manufacturing sector grew by 14.5 percent and 14.8 percent year on year, respectively, both outpacing the overall loan growth. Financing costs were stable with a slight decline. In September, the weighted average rate on new corporate loans registered 3.51 percent, down 0.31 percentage point year on year. The RMB exchange rate remained stable with an upward trend against a basket of currencies. By end-September, the China Foreign Exchange Trade System (CFETS) RMB Index had risen by 1.0 percent from the end of 2023.
Currently, external uncertainties are on the rise and momentum for global economic growth has weakened. The domestic economy still faces challenges, such as insufficient effective demand and weak social expectations. However, China’s economic fundamentals remain solid, and favorable conditions for development, including its big market, resilient economy, and great potential, remain unchanged. Therefore, we should face the challenges, remaining confident and responding proactively. 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 guiding principles of the Third Plenary Session of the 20th CPC Central Committee, the Central Economic Work Conference, and the Central Financial Work Conference. It will adhere to the general principle of seeking progress while maintaining stability, and it will apply the new development philosophy fully and faithfully on all fronts. Firmly following the path of financial development with Chinese characteristics, the PBOC will continue its efforts to promote high-quality financial development and build China into a financial powerhouse. It will deepen institutional reform in the financial sector, fasten the pace of making improvements to the central banking system, and further optimize the monetary policy framework. The PBOC will work to strike a balance between short-term and long-term concerns, between growth stability and risk prevention, and between the internal and external equilibria. Firmly pursuing an accommodative monetary policy stance, it will intensify monetary policy adjustments and enhance the precision of monetary policy to create a favorable monetary and financial environment for steady economic growth and high-quality development.
The sound monetary policies will be flexible, moderate, precise, and effective. The PBOC will keep liquidity adequate at a reasonable level, and it will guide reasonable growth and a balanced supply of credit, thereby keeping aggregate financing and money supply to remain in step with the projected economic growth and CPI increase. Promoting reasonable price recovery will be an important consideration for the implementation of monetary policies so as to keep prices at a reasonable level. It will improve the market-based interest rate formation and transmission mechanism, enhance the guiding role of the central bank policy rate, and unleash the efficacy of the self-regulatory pricing mechanism for market interest rates and the mechanism for market-oriented deposit rate adjustments so as to help financial institutions enhance their ability to set prices independently and to keep the costs of business financing and of consumer credit stable with a downward trend. Implementing policies in a targeted, appropriate, and flexible way, the PBOC will continue its efforts to develop sci-tech finance, green finance, inclusive finance, old-age finance, and digital finance. It will also step up efforts to provide high-quality financial services for major strategies, key areas, and weak links, aiming to make financial services more adaptive and better targeted for economic restructuring and dynamic balancing. The PBOC will smooth the transmission mechanism of monetary policy, diversify monetary policy tools, and enhance the efficiency of fund utilization. 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 formation of the exchange rate. Also, by taking a holistic approach to policy implementation and strengthening expectation guidance, it will prevent market expectations from becoming overly one-sided and self-realized, 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 improve the macro-prudential policy framework and the systemic financial risk prevention and resolution mechanism, thereby firmly defending the bottom line whereby no systemic financial risks will occur.
