Executive Summary
Since the beginning of 2023, under the strong leadership of the CPC Central Committee with Comrade Xi Jinping at its core, the Chinese economy has continued to improve and positive factors have continued to increase with the implementation of a mix of macro policies. GDP grew 4.9 percent year on year in Q3, bringing the two-year average to 4.4 percent, an acceleration of 1.1 percentage points from Q2. The growth laid a solid foundation for reaching the development goals for the entire year. Prices remained generally stable, with the CPI witnessing year-on-year growth of 0.4 percent in the first three quarters. 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 implemented a sound monetary policy in a targeted and effective manner and it strengthened counter-cyclical adjustments, thereby helping to consolidate the positive trend of economic recovery.
First, money and credit witnessed reasonable growth. The PBOC lowered the required reserve ratio (RRR) by 0.25 percentage points in September, and it kept liquidity adequate at a reasonable level through multiple channels, including central bank lending and discounts, medium-term lending facility (MLF) operations, and open market operations (OMOs). Financial institutions were guided to maintain a moderate credit aggregate and a steady pace of credit growth so as to enhance the stability and the sustainability of credit growth. Second, the financing costs for the real economy remained stable with a slight decline. With the policy rate playing a guiding role, the OMO repo rate and the MLF rate dropped further by 10 and 15 basis points (bps), respectively, in August. As the loan prime rate (LPR) reform and the mechanism for market-oriented adjustments of deposit rates continuously played their roles, corporate loan rates were lowered and bank liability costs were stabilized. By adjusting and improving housing credit policies, the PBOC lowered the floor for mortgage rates and the rates on existing first-home loans. Third, the structural monetary policy toolkit continued to play its role. The PBOC increased the quotas for central bank lending for rural development and micro and small businesses (MSBs) to support disaster relief and reduction, and it enhanced support for the financing of technology-based enterprises. In addition, it continued to make full use of existing instruments, such as the carbon emission reduction facility (CERF) and the special central bank lending for clean and efficient coal use. Fourth, 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 an adaptive and equilibrium level. Fifth, financial risk prevention and resolution were enhanced. The PBOC intensified risk monitoring, early warnings, and early corrections for financial institutions and strengthened timely resolution and hard constraints for risks so as to firmly defend the bottom line whereby no systemic financial risks will occur.
Overall, monetary policy this year has been targeted and sustainable, thereby providing stronger support for the real economy. Money and credit witnessed reasonable growth. At end-September, outstanding RMB loans reached RMB235 trillion, and broad money (M2) and outstanding aggregate financing to the real economy (AFRE) recorded year-on-year growth of 10.3 percent and 9.0 percent, respectively. In the first nine months of the year, new RMB loans registered RMB19.75 trillion, RMB1.58 trillion more than those during the same period of the previous year. 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 24.1 percent and 38.2 percent year on year, respectively. Financing costs declined notably. In September, the weighted average rate on new corporate loans and on personal housing loans registered 3.82 percent and 4.02 percent, down 0.18 and 0.32 percentage points year on year, respectively. The adjustment of interest rates on existing housing loans was basically completed, with the rates dropping by 0.73 percentage points on average. The RMB exchange rate remained stable with an upward trend against a basket of currencies, appreciating 2.9 percent at end-September from end-June. Market expectations were stabilizing.
Currently, China’s economy continues to recover with an upward trend. The growth momentum continues to strengthen, and transformation and upgrading are well underway. Meanwhile, China’s economy faces challenges posed by the imbalanced global economic recovery and the unstable basis for economic rebound at home, among others. In spite of this, the sound fundamentals for long-term development remain unchanged, with the noticeable growth resilience, potential, and vitality. Therefore, we should provide sustained support and capitalize on the momentum so as to promote high-quality economic development. During the next stage, upholding and strengthening the CPC’s overall leadership, and guided by Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, the PBOC will thoroughly implement the guidelines of the 20th CPC National Congress and the Central Financial Work Conference, and it will apply the new development philosophy fully, faithfully, and comprehensively. With a deep understanding of the political nature and the people-centered nature of financial work, the PBOC will aim for high-quality development of the financial sector, focus on deepening supply-side structural reforms in the financial sector, and adhere to the general principle of pursuing progress while ensuring stability. It will improve financial macro adjustments and accelerate the pace of building up China’s financial strength, firmly following the path of promoting financial development with Chinese characteristics. With serving the real economy as the fundamental purpose of the financial sector, the PBOC will develop a modern central banking system and maintain the soundness of monetary policies. It also will strengthen high-quality financial services, provide stronger support to expand domestic demand, and work to stabilize foreign trade and foreign investment so as to provide high-quality services for economic and social development.
Pursuing a sound monetary policy in a targeted and effective manner, the PBOC will focus more on inter-temporal and counter-cyclical adjustments and it will enrich the policy toolkit so as to foster a favorable monetary and financial environment. Based on the pattern and the new features of money and credit supply and demand, the PBOC will enhance the role of money supply in adjusting both the aggregate and the structure. Using a mix of monetary policy instruments, it will keep liquidity adequate at a reasonable level, and it will ensure that the growth rates of M2 and the AFRE continue to be basically in line with nominal economic growth. The PBOC will step up efforts to smooth the monetary policy transmission mechanism, and it will enhance the stability of financial support for the real economy so as to cultivate a virtuous cycle between the economy and finance and to keep prices stable at a reasonable level. By continuing to deepen the market-oriented interest rate reform, unleashing the potential of the LPR reform, and giving play to the important role of the mechanism for market-oriented deposit rate adjustments, it will safeguard the order of the deposit and loan markets and guide financial institutions to lower actual lending rates. The structural monetary policy instruments will be targeted, appropriate, and flexible. The PBOC will ensure proper use of the increased quotas for central bank lending and discounts as well as the existing structural instruments. Meanwhile, by improving the funding structure, it will guide more financial resources toward sci-tech innovation, advanced manufacturing, green development as well as micro, small, and medium-sized enterprises (MSMEs). Efforts will be made to achieve the goals for developing technology finance, green finance, inclusive finance, pension finance, and digital finance and to speed up the cultivation of new economic growth drivers and new advantages. The 16 financial measures to bolster the real estate market will continue to be implemented, and more financial support will be provided for the rebuilding of run-down urban areas, the construction of public infrastructures for both daily and emergency uses, and the development of government-subsidized housing projects. The PBOC will pursue a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies. For the benefit of long-term development, starting from the present it will take firm actions to correct pro-cyclical market behaviors, to punish conducts that disrupt market order, and to prevent risks arising from exchange rate overshooting. It will prevent expectations from becoming unanimously one-sided and self-reinforced so as to keep the RMB exchange rate basically stable at an adaptive and equilibrium level. The PBOC will prevent and resolve financial risks in key areas and it will guide financial institutions to support the resolution of local debt risks actively and prudently, thereby firmly defending the bottom line whereby no systemic financial risks will occur.
