Central Bank: Moderately loose monetary policy will be implemented in 2025

The Zhitong Finance App learned that on January 14, the State Information Office held a series of press conferences on the “High Quality Development Results of China's Economy” to introduce the situation related to financial support for high-quality economic development. Vice Governor Xuan Changneng of the central bank said at the press conference that the central bank will implement a moderately loose monetary policy in 2025. In the next stage, macroeconomic policies will also further strengthen countercyclical adjustment. The central bank will take the opportunity to adjust and optimize the strength and pace of the policy according to the domestic and foreign economic and financial situation and financial market operation to support the achievement of economic and social development goals throughout the year. Make comprehensive use of various monetary policy instruments such as interest rates and deposit reserve ratios to maintain abundant liquidity and ensure a relaxed social financing environment. Strengthen the implementation of interest rate policies, and further reduce the cost of comprehensive social financing on the basis of maintaining the healthy operation of the financial industry. Make good use of structural monetary policy tools to give full play to the dual functions of total volume and structure of monetary policy instruments. Continue to take comprehensive measures to maintain the basic stability of the RMB exchange rate at a reasonable equilibrium level.

Xuan Changneng also said that the People's Bank of China's exchange rate policy position is clear and consistent. The goal of maintaining the basic stability of the RMB exchange rate will not change. We have accumulated rich experience in dealing with external shocks over the years, and we have the confidence, conditions, and ability to resolutely achieve our goals. In the next stage, comprehensive measures will continue to be taken to enhance the resilience of the foreign exchange market, stabilize market expectations, strengthen market management, resolutely correct market procyclical behavior, resolutely deal with acts disrupting market order, resolutely prevent the risk of exchange rate overregulation, and maintain the basic stability of the RMB exchange rate at a reasonable equilibrium level.

Zou Lan, director of the central bank's monetary policy department, said at the press conference that the two tools introduced by the central bank to support the capital market follow the principles of marketization and legalization. Listed companies and industry institutions can independently decide the timing and size of stock purchases based on market conditions, which is conducive to giving full play to the market selection function and correcting capital market overruns. When the market value of stocks is clearly undervalued, listed companies, major shareholders, and securities institutions will be willing enough to use the low-cost incremental capital provided by the two tools to buy back or increase their holdings, starting from their own interests. This forms an internal stable balance mechanism, which can effectively play a role in stabilizing the market and curbing the negative cycle of the market. The People's Bank of China will further improve tool design and institutional arrangements based on early practical experience, and continuously improve the convenience of using tools. Relevant enterprises and institutions can obtain sufficient capital at any time to increase investment as needed.

The original text is as follows:

The State Information Office held a series of press conferences on the “High Quality Development Results of China's Economy” to introduce the situation of financial support for high-quality economic development

Shou Xiaoli, Director of the Information Bureau of the Information Office of the State Council and press spokesman:

Good afternoon, ladies and gentlemen. Welcome to the press conference of the Information Office of the State Council. Today, we will continue to hold the “High Quality Development Results of China's Economy” series of press conferences. We invited Mr. Xuan Changneng, Deputy Governor of the People's Bank of China, and Mr. Li Bin, Deputy Director of the State Administration of Foreign Exchange, to brief everyone on financial support for high-quality economic development and answer questions of interest to everyone. Also attending today's press conference were Mr. Zou Lan, press spokesperson of the People's Bank of China and Director of the Monetary Policy Department; Ms. Zhang Wenhong, head of the Department of Investigation and Statistics; and Mr. Jia Ning, Director of the Balance of Payments Department of the State Administration of Foreign Exchange.

Next, let me first ask Mr. Xuan Changneng to give an introduction.

Xuan Changneng, Deputy Governor of the People's Bank of China:

Good afternoon, dear journalists! I am very happy to have this opportunity to have a face-to-face exchange. Next, I will give you a brief introduction to the situation related to financial support for high-quality economic development, as well as ideas for the next stage of work.

In 2024, the People's Bank of China adhered to a supportive monetary policy position and implemented major monetary policy adjustments four times to help the economy maintain a positive upward trend and support high-quality economic development. It is mainly reflected in four aspects:

In terms of total volume, maintain steady growth in monetary credit. Make comprehensive use of various monetary policy tools to maintain reasonable and abundant liquidity, promote reasonable growth in the scale of social financing and monetary credit, and guide loan interest rates to continue to decline. Last year, the statutory reserve ratio was lowered twice by a total of 1 percentage point, and the central bank's policy interest rate was lowered twice by a total of 0.3 percentage points, all of which were the strongest in recent years.

Structurally, increase support for key areas. Set up 500 billion yuan of reloans for scientific and technological innovation and technological transformation to effectively guide financial institutions to increase financial support for first lenders to technology-based small and medium-sized enterprises, as well as technological transformation and equipment upgrading projects in key areas. By the end of last year, there were 22,000 bank marketing matchmaking projects, and loan contracts had been signed and enterprises were waiting to withdraw funds of 838.9 billion yuan at any time. An affordable housing reloan of 300 billion yuan has been introduced, the lower limit of the mortgage interest rate policy has been lifted, and interest rates on existing mortgages have been lowered again, reducing borrowers' mortgage interest expenses by about 150 billion yuan each year. Both supply and demand sides are making simultaneous efforts to support the steady and healthy development of the real estate market. Two capital market support tools have also been created to effectively improve capital market expectations.

In terms of transmission, unblock channels for transmission of policy interest rates. The main policy interest rates were specified, and the transmission relationship between short and long interest rates was gradually straightened out. At the same time, strengthening the implementation of interest rate policies, controlling capital idling, vigorously rectifying manual interest rates, optimizing self-regulatory management of interest rates on public deposits and interbank demand deposits has saved banks' interest expenses, and created conditions for reducing social financing costs and balancing the sustainable development of banks.

In terms of exchange rate, the basic stability of the RMB exchange rate at a reasonable equilibrium level has been maintained under complicated circumstances. Adhere to the decisive role of the market in exchange rate formation, give full play to the adjustment function of the exchange rate on the macroeconomy and balance of payments. At the same time, adopt comprehensive policies, stabilize expectations, and adopt a series of strong measures such as publicly announcing the central bank's position and making good use of macroprudential management tools to prevent the risk of exchange rate overregulation.

Overall, monetary policy achieved good results in 2024. Total financial volume grew reasonably. At the end of December, the scale of social financing increased 8.0% year on year, broad currency M2 increased 7.3% year on year, and RMB loans increased 7.6% year on year, all higher than the nominal economic growth rate. Interest rates on loans declined steadily. In December, the interest rate for newly issued corporate loans was about 3.43%, down 0.36 percentage points from the previous year, and the interest rate on personal housing loans was about 3.11%, down 0.88 percentage points from the previous year. The credit structure has been continuously optimized. Medium- and long-term loans to the manufacturing industry increased 11.9% year on year, loans for specialty and new enterprises increased 13.0% year on year, and inclusive small and micro loans increased 14.6% year on year, continuing to be higher than the overall loan growth rate during the same period. The RMB exchange rate remains basically stable at a reasonable equilibrium level, and the exchange rate for a basket of currencies is stable at around 100, taking into account internal and external equilibrium.

According to the central government's requirement to “implement a more active and promising macroeconomic policy,” the People's Bank of China will implement a moderately loose monetary policy this year. In recent years, a prudent monetary policy has placed more emphasis on the requirements of strength, effectiveness, accuracy, and flexibility. It has a looser grasp of the regulatory range, and will also continue to increase countercyclical adjustment efforts according to the economic performance in the middle of the year. Interest rates have continued to be lowered since the end of 2019. The cumulative effect has left the social financing environment in a relatively relaxed state.

In the next stage, macroeconomic policies will also further strengthen countercyclical adjustment. We will take the opportunity to adjust and optimize the strength and pace of our policies according to the domestic and foreign economic and financial situation and the operation of financial markets to support the achievement of economic and social development goals throughout the year. Make comprehensive use of various monetary policy instruments such as interest rates and deposit reserve ratios to maintain abundant liquidity and ensure a relaxed social financing environment. Strengthen the implementation of interest rate policies, and further reduce the cost of comprehensive social financing on the basis of maintaining the healthy operation of the financial industry. Make good use of structural monetary policy tools to give full play to the dual functions of total volume and structure of monetary policy instruments. Continue to take comprehensive measures to maintain the basic stability of the RMB exchange rate at a reasonable equilibrium level.

I'll give you a brief introduction to these, and then my colleagues and I will be happy to answer any questions you may have. Thank you all!

Xiaoli Shou:

Thank you, Vice President Xuan Changneng, for his introduction. Let's ask Mr. Li Bin for his introduction.

Li Bin, Deputy Director of the State Administration of Foreign Exchange:

Good afternoon, media friends! First of all, thank you all for your long-term interest and support in foreign exchange management! Vice President Xuan Changneng just gave a comprehensive and systematic introduction on monetary policy and other financial support for high-quality economic development. Next, I will give you a supplementary introduction to supporting economic development in the foreign exchange sector.

Over the past year, the State Administration of Foreign Exchange implemented the decisions and arrangements of the Party Central Committee, insisted on using reform and opening-up methods to deal with external challenges, and continued to advance high-level opening-up in the foreign exchange sector and reforms to facilitate cross-border trade investment and financing. We have cancelled the administrative license for registration in the Foreign Trade Enterprise Directory. After the reform, banks can generally complete the registration procedure within 15 minutes. Currently, more than 100,000 enterprises have enjoyed convenient policies. We actively support the development of new forms of trade, and facilitate cross-border e-commerce transactions of about 26 billion US dollars in foreign exchange transactions throughout the year. We continue to promote the facilitation of cross-border financing, with policy coverage benefiting 1.3 million science and innovation enterprises. We continue to deepen the construction of cross-border financial service platforms. Currently, we have helped more than 100,000 enterprises obtain financing of more than 380 billion US dollars, making it easy for companies to pay nearly 2 trillion US dollars in remittance. We optimize the fund management regulations for qualified overseas institutional investors to invest in domestic securities and futures, and support domestic institutions to carry out cross-border securities investments in an orderly manner. We have further optimized the pilot project to expand the multinational companies' local and foreign currency integrated capital pool business to facilitate the collection and use of multinational companies' capital. Currently, there are more than 18,000 multinational company member companies that have benefited from the capital pool policy. At the same time, we are also focusing on improving our supervisory capabilities under open conditions, resolutely preventing and mitigating the risk of external shocks, strictly cracking down on illegal and illegal foreign exchange activities, and maintaining the healthy development of the foreign exchange market.

Overall, foreign exchange management work achieved good results in 2024. Cross-border trade and investment is more active. In 2024, the total foreign-related income and expenditure of non-banking sectors such as enterprises and individuals was 14.3 trillion US dollars, an increase of 14.6% over 2023. The scale reached a record high. The domestic RMB foreign exchange market volume exceeded 41 trillion US dollars, an increase of 14.8% over 2023. The balance of payments maintained a basic balance. The current account surplus for the first three quarters of 2024 was US$241.3 billion, with a ratio of 1.8% to China's gross domestic product (GDP). It is in an internationally recognized equilibrium range. Preliminary estimates suggest that the current account still maintained a reasonable surplus for the fourth quarter. China's foreign investment is growing rapidly. At the end of September 2024, the stock of foreign assets exceeded 10 trillion US dollars for the first time, and capital from direct investment in China and investment in securities to China maintained a net inflow. The balance of foreign exchange reserves has stabilized at more than 3.2 trillion US dollars, and the RMB exchange rate remains basically stable at a reasonable equilibrium level.

In the coming period, China's economic stabilization and positive trend will be further consolidated, the overall balance of payments pattern will not change, the resilience of the foreign exchange market will continue to increase, and the RMB exchange rate will remain basically stable. The State Administration of Foreign Exchange will thoroughly study and implement the spirit of the Central Economic Work Conference, better coordinate development and security, implement more active and promising foreign exchange management policies, and help high-quality economic development and a high level of openness. I'll introduce so many things first, thank you all.

Xiaoli Shou:

Thank you, Deputy Director Li Bin, for the introduction. Now let's move on to the questioning section. Please let us know your news organization before asking questions. Please start asking questions by raising your hands.

US International Market News Reporter:

Recently, Chinese treasury bond yields have declined, the gap between China and the US has continued to widen, and pressure on the renminbi to depreciate has increased. May I ask, will this limit the room and strength of monetary policy easing? What steps will be taken to stabilize the exchange rate?

Xuan Changneng:

I'll answer this question, and first of all, thank you for your question. When implementing monetary policy, the People's Bank of China mainly takes into account the domestic economic and financial situation; of course, it also takes into account internal and external balance. In 2024, the international situation was complex and varied. Many factors contributed to the turbulence and strengthening of the US dollar index. The Chinese foreign exchange market showed excellent resilience. The RMB exchange rate generally showed a two-way trend, maintained basic stability under complex circumstances, and performed relatively well among major currencies. It created favorable conditions for China to independently implement monetary policy, and played a positive role in stabilizing the economy and foreign trade. At the end of 2024, the RMB Exchange Rate Index (CFETS), which measures changes in the exchange rate of RMB against a basket of currencies, was 101.47, up 4.2% from the end of the previous year; the closing price of the RMB exchange rate against the US dollar was 7.2988, down 2.8% from the end of the previous year. The US dollar index rose 7% during the same period, fully reflecting the resilience of the RMB.

The complexity, severity and uncertainty of the external environment may rise further for some time to come, but China's solid economic foundation, current account surpluses, independent balance of cross-border capital flows, sufficient foreign exchange reserves, and resilience in the foreign exchange market provide certainty and strong support for maintaining the basic stability of the RMB exchange rate.

First, the macroeconomic market is more solid. Since last year, the package of incremental support policies introduced since September of last year will continue to be implemented and effective. The Central Economic Work Conference arranged to implement a more active fiscal policy and a moderately loose monetary policy in 2025, which will further consolidate the positive trend of China's economic recovery. Second, the current account has maintained a surplus for many years. The import and export surplus for the first 11 months of 2024 was 884.6 billion US dollars, an increase of 18.4% over the previous year, providing a strong guarantee for balancing foreign exchange supply and demand. Third, there is an autonomous balance of cross-border capital flows. The opening up of financial markets is progressing steadily, and the level of facilitation of cross-border investment and financing continues to rise, attracting a steady inflow of medium- to long-term capital from abroad. Fourth, the foreign exchange reserve market remains stable, effectively playing the role of ballast stone in maintaining the country's economic and financial stability. Fifth, the foreign exchange market is more resilient. Market participants are more mature, trading behavior is more rational, the concept of exchange rate risk neutrality is constantly being strengthened, and more use of exchange rate hedging tools provides a very important micro foundation for the steady operation of the foreign exchange market and maintaining a balance between foreign exchange supply and demand. Currently, RMB cross-border payments account for about 30% of goods trade, and the foreign exchange hedging ratio of enterprises has reached 27%. These are all very good microfoundations of the foreign exchange market.

The People's Bank of China's exchange rate policy position is clear and consistent. The goal of maintaining the basic stability of the RMB exchange rate will not change. We have accumulated rich experience in dealing with external shocks over the years, and we have the confidence, conditions, and ability to resolutely achieve our goals. In the next stage, comprehensive measures will continue to be taken to enhance the resilience of the foreign exchange market, stabilize market expectations, strengthen market management, resolutely correct market procyclical behavior, resolutely deal with acts disrupting market order, resolutely prevent the risk of exchange rate overregulation, and maintain the basic stability of the RMB exchange rate at a reasonable equilibrium level.

Thank you all.

CCTV reporter at the general station:

As mentioned earlier, the central bank established two new monetary policy instruments to support the stable development of the capital market last year. I would like to ask how are these two monetary policy instruments currently operating? What more are the next steps? Thank you.

Xuan Changneng:

I ask Director Zou Lan to answer this question.

Zou Lan, press spokesman for the People's Bank of China and director of the Monetary Policy Department:

Thank you to the reporter for the question. The capital market is not only a “weather vane” for confidence, but also an important channel for financial resource allocation, and is closely related to economic development. Relevant departments continue to improve the function of the capital market in coordination with investment and financing, promote the healthy and stable development of the capital market, and have taken a series of policy measures. One of the most important elements of this is to consolidate the main responsibility of listed companies in market value management and further develop the main role of securities, funds and other industry institutions in maintaining market stability. Considering that current regulations do not allow corporate loans to buy stocks, and that related securities institutions also face the problem of insufficient capital, the People's Bank of China has created two tools to support the stable development of the capital market, hoping to use this to enhance the financing and investment capacity of relevant institutions, and create conditions and provide incentives for these institutions to continue to implement new management requirements.

The two instruments follow the principles of marketization and legalization. Listed companies and industry institutions can independently decide the timing and size of stock purchases according to market conditions, which is conducive to giving full play to the market selection function and correcting capital market overruns. Since September of last year, confidence in the capital market has increased markedly, and trading volume and market indices have risen sharply. Relevant businesses and organizations also have more time to familiarize themselves with the new tools, make preparations, and reserve more space to use the new tools when needed. By the end of 2024, securities, funds, and insurance companies' interchange facilities had accumulated over 100 billion yuan. Financial institutions had signed stock repurchase and increase holdings loan contracts with more than 700 listed companies or major shareholders, amounting to more than 30 billion yuan. In 2024, the entire market disclosed that the upper limit of repurchase and increase holdings plans was close to 300 billion yuan.

When the market value of stocks is clearly undervalued, listed companies, major shareholders, and securities institutions will be willing enough to use the low-cost incremental capital provided by the two tools to buy back or increase their holdings, starting from their own interests. This forms an internal stable balance mechanism, which can effectively play a role in stabilizing the market and curbing the negative cycle of the market. The People's Bank of China will further improve tool design and institutional arrangements based on early practical experience, and continuously improve the convenience of using tools. Relevant enterprises and institutions can obtain sufficient capital at any time to increase investment as needed.

Thank you!

Daily Economic News Reporter:

The Central Economic Work Conference proposed maintaining a basic balance in the balance of payments. How to evaluate China's balance of payments in 2024? External risks and challenges are likely to increase in 2025. What impact will this have on China's balance of payments? Thank you.

Li Bin:

This question relates to the balance of payments situation. Director Jia Ning of the Balance of Payments Department of the Foreign Exchange Bureau is invited to answer it.

Jia Ning, Director of the Balance of Payments Department of the State Administration of Foreign Exchange:

Thank you for your interest in the balance of payments situation. The balance of payments can comprehensively record all types of transactions between a country and other economies, including trade in goods, trade in services, investment income, etc. included in the current account, as well as direct investment, securities investment, deposits and loans, and official reserves included in capital and financial accounts. It comprehensively reflects the level of a country's external economic development and internal and external balance. It is generally believed that there are two important criteria for evaluating the basic balance of payments: first, the current account balance is within ± 4% of GDP, and there is no excessive surplus or deficit that lasts for a long period of time; second, the current account balance is achieved autonomously with non-reserve financial accounts, that is, the current account surplus is used through foreign investment, etc., or the current account deficit has stable external financing support.

Just now, Deputy Director Li Bin explained the current state of China's balance of payments. The ratio of China's current account surplus to GDP is estimated to be around 2% in 2024, and has been in a reasonable equilibrium range since 2011. At the same time, non-reserve financial accounts showed deficits, mainly due to an increase in foreign investment by domestic players. The scale was 346.9 billion US dollars in the first three quarters of 2024, an increase of 1.4 times over the previous year; the total net inflow of direct investment capital in China and investment in Laihua Securities was 153.4 billion US dollars. In recent years, China's foreign exchange market's ability to self-regulate has been enhanced. Goods trade surpluses and inflows of investment capital into China have been converted into foreign investment by domestic enterprises, banks, etc., reflected in the balance of payments as a balance between current account surpluses and non-reserve financial account deficits, and the RMB exchange rate has remained basically stable at a reasonable equilibrium level.

Looking ahead to 2025, there are still many uncertain and unstable factors in the external environment, but China is implementing more active and promising macroeconomic policies, and stable economic fundamentals will help boost market expectations and confidence. At the same time, China's foreign trade and foreign investment are resilient, the foreign exchange market is stable, and the balance of payments has a foundation and conditions to maintain a basic balance. Let's take a closer look:

First, the transformation and upgrading of China's manufacturing industry is progressing steadily, and increased foreign trade resilience will help maintain a reasonable current account surplus. The value added of China's manufacturing industry accounts for 30% of the world, and its role in global production and supply is irreplaceable. At the same time, the transformation and upgrading of the manufacturing industry and diversification of trading partners are progressing steadily, export competitiveness has improved, and dependence on the single market has decreased. China's exports have overcome adverse factors such as increased protectionism in global trade and have remained stable overall. In the first three quarters of 2024, China's exports accounted for 14.5% of the world, and have stabilized at a high level in recent years.

Second, China insists on expanding a high level of opening-up to the outside world and continuously consolidating and improving the resilience of the foreign exchange market. Cross-border two-way investment is expected to remain stable and orderly. China is deepening the reform of the institutional mechanism to promote foreign investment and steadily raising the level of facilitation of cross-border investment and financing, which is conducive to foreign investors coming to China to develop businesses, and opening up the financial market is also conducive to foreign investment allocating RMB assets. China's foreign exchange market continues to expand in depth, the mechanism for market-based RMB exchange rate formation has been gradually improved, companies' awareness and ability to avoid risks in the exchange rate have increased, and the cross-border use of RMB has increased, which also helps market transactions to be more rational and orderly. In 2024, the foreign exchange hedging ratio of enterprises was 27%, and RMB transactions under trade in goods accounted for nearly 30%, all of which are at an all-time high.

Furthermore, we have always attached great importance to external risks and challenges. The State Administration of Foreign Exchange will continue to deepen the reform and opening up of the foreign exchange sector to better serve the development of foreign trade and foreign investment. Improve long-term mechanisms for enterprise exchange rate risk management to better support corporate exchange rate hedging. At the same time, strengthen the management of the foreign exchange market, adopt macroprudential countercyclical adjustment measures in due course, resolutely correct the procyclical behavior of the foreign exchange market, maintain the basic stability of the RMB exchange rate at a reasonable equilibrium level, and maintain the basic balance of payments. Thank you.

Bloomberg News Reporter:

There are a few questions about the treasury bond market. May I ask, does the central bank think that the current treasury bond yield correctly and fairly reflects the fundamentals of the economy? What further measures will the central bank take to manage risks in the treasury bond market? Also, we have noticed that the central bank recently stopped buying treasury bonds. Excuse me why are purchases being stopped and how long is such a suspension likely to last? Will the central bank increase the trading scale of treasury bonds this year?

Xuan Changneng:

Director Zou Lan continued to answer this question.

Zou Lan:

Thank you to the reporter for the question. The recent rapid decline in long-term treasury bond yields has attracted the attention of all parties. After years of development, China's treasury bond yield curve has basically served as a benchmark for financial market pricing. The level of yield on treasury bonds is related not only to the country's financial financing costs, but also to the stable development of the entire financial market. Generally speaking, the yield on long-term treasury bonds not only reflects the market's expectations for future long-term economic growth, but is also affected by the supply and demand relationship in the market. Since 2024, China's economy has rebounded for the better amid fluctuations. In particular, since September, market expectations and social confidence have improved markedly, and it is expected that the annual growth target of around 5% can be achieved. The recent Central Economic Work Conference also clearly stated that more active and promising macroeconomic policies should be implemented to maintain steady economic growth. The improvement in economic expectations will eventually be reflected in the level of treasury bond yields.

Treasury bonds represent national credit. If held at maturity, you will definitely receive the principal amount and agreed coupon interest. There is no credit risk, so treasury bonds are also generally considered a safe asset. However, since the coupon interest rate on long-term treasury bonds is fixed, changes in the market's expected interest rate will cause the transaction price in the secondary market to fluctuate, and sometimes fluctuate quite a bit, so investing in treasury bonds is not risk-free. For example, if you buy a 30-year treasury bond at the end of 2023 and sell it now, the coupon interest income will be less than 3%, but the return on investment with the price difference will be close to 20%. High returns have attracted all kinds of capital to continue to pour into this market. After changing the relationship between supply and demand, prices continued to rise. The trading volume of individual securities has exceeded 10 times that of the past. Conversely, at the end of 2022, long-term treasury bond yields rose by about 20 basis points within a few days, and prices in the secondary market fell sharply accordingly. Financial management of some banks investing in treasury bonds fell below net value, causing centralized redemptions, accelerating price declines, and investors suffered huge losses. The 2023 Silicon Valley Bank incident was a similar example. If the yield on long-term treasury bonds does not accurately reflect economic fundamentals, or if the relationship between supply and demand changes greatly, taking 30-year treasury bonds as an example, once the yield rises by 30 BP, the corresponding treasury bond price in the secondary market will drop by more than 5%. Also, considering that some institutions have the amplification effect of capital leverage and the spiral effect formed by centralized redemptions, they will incur greater losses in the short term.

The People's Bank of China respects the market, respects the choices of every market participant who bears their own risk and makes independent decisions, and also attaches great importance to market information reflected in changes in treasury bond yields. Considering that the development period of the Chinese bond market is still relatively short, it has not experienced major twists and turns since the 90s of the last century. Not all investors, managers, and especially the public are familiar with the hidden market price risks behind the high return on investment in government bonds. As a result, the People's Bank of China has strengthened macroprudential management, alerted risks several times, strengthened market supervision, and suspended purchasing operations in the secondary market during a period of less issuance in the primary market, and instead used other tools to invest in liquidity. This can avoid affecting investors' allocation needs and exacerbate supply and demand conflicts and market fluctuations. The purpose is to hope that the market can stabilize and far-reaching.

Thank you.

Cover News Reporter:

At the beginning of December last year, the central bank issued an announcement to revise the M1 caliber. What are the considerations for the M1 caliber adjustment? What impact will it have on financial statistics and monetary policy regulation in 2025? Thank you.

Xuan Changneng:

Zhang Wenhong, head of the Department of Investigation and Statistics, was asked to answer this question.

Zhang Wenhong, head of the Research and Statistics Department of the People's Bank of China:

Let me answer this question. Thank you to the reporter for the question, and thank you for your interest in financial statistics. Money supply is the sum of financial instruments that undertook circulation and means of payment at a certain point in time, and is an important indicator for financial statistics and analysis. The People's Bank of China has always attached great importance to adjusting the statistical caliber of money supply according to economic and financial developments and changes in the liquidity of financial instruments. China's money supply statistics have experienced four major adjustments since they were established. In recent years, China's financial market and financial innovation have developed rapidly, the liquidity of financial instruments has changed greatly, and the scope of financial instruments that meet the M1 statistical definition has also changed. Dynamic optimization of the M1 statistical caliber needs to be considered.

This optimization of the M1 statistical caliber is based on the current M1 and further incorporates personal current accounts and provision for non-bank payment institution customers. Regarding personal current deposits, when M1 statistics were created, China did not have personal bank cards at the time, let alone a mobile payment system. Personal current accounts could not be used for instant transfers and payments, so they were not included in the M1 statistics at the time. With the rapid development of payment methods, personal current accounts now have a transfer payment function, and everyone can use them for payment at any time without withdrawal. Similar to the liquidity of unit demand deposits, they should be included in M1. For non-bank payment institution customers, such as everyone's WeChat wallet, Alipay balance, etc., they can be directly used for payments or transactions. They have strong liquidity, and should also be included in M1. From an international perspective, most of the major economies' M1 statistics include personal current deposits and other highly liquid payment instruments.

Financial statistics are an objective reflection of financial operations. Determining the caliber of statistical indicators should be based on science and effectiveness to provide information support for policy decisions. After measuring historical data, we found that the correlation between the revised M1 data and economic growth indicators has increased, and stability has also improved. The People's Bank of China will maintain the transparency of statistics as always. We will start counting M1 according to the revised caliber starting with the January data of this year, which is expected to be announced to the public in early February. At the same time as the initial announcement, we will also announce the revised M1 balance and growth rate since January last year. Thank you.

First Financial Daily Reporter:

My question is that interest rates have continued to decline in recent years and are currently at a relatively low level. The central bank mentioned that it should improve the transmission and implementation of interest rate policies and expand the space for interest rate policies. What are the next steps to consider? Thank you.

Xuan Changneng:

I'll answer that question. China's interest rate system can be divided into three levels: the first level is the central bank's policy interest rate. Currently, it is the 7-day reverse repurchase interest rate for open market operations. The interest rate cut commonly mentioned refers to a decline in this interest rate. The second level is the market benchmark interest rate. The treasury bond yield curve that Director Zou Lan just pointed out in response to related questions is also an important type of benchmark interest rate in the market. It plays a very important role as a pricing benchmark for the bond market and many financial assets. The third level is market interest rates such as deposits and loans. The ultimate effect of declining financing costs will be reflected in these interest rates on deposits and loans. In recent years, the effects of policy interest rate guidance have been further demonstrated. Last year, policy interest rates were reduced by a total of 0.3 percentage points, leading to a 0.35 percentage point drop in the 1-year loan market quoted interest rate and 0.6 percentage points in the loan market for loans with a term of 5 years or more, driving loan interest rates to drop even more drastically. To achieve the goal of reducing the cost of comprehensive social financing, we will expand interest rate policy space through comprehensive measures.

The first is to continue to strengthen the implementation of interest rate policies. Last year, the People's Bank of China concentrated on rectifying high-interest savings through illegal “manual interest compensation”. It also optimized the self-regulatory management of interest rates on public deposits and interbank demand deposits, maintained normal market order, and created conditions for banks to reduce comprehensive social financing costs. This year, we will continue to strengthen our work in this area, further reduce banks' overall debt costs, ease the pressure on banks' net interest spreads, and better balance the relationship between the health of the banking sector's balance sheets and the decline in financing costs in the real economy.

The second is to balance internal and external balance. The stability of the RMB exchange rate has a solid foundation. As I mentioned earlier, in response to possible adverse effects of changes in the external environment, we will take multiple measures to resolutely prevent the risk of exchange rate overadjustment, maintain the basic stability of the RMB exchange rate at a reasonable equilibrium level, and lay a good foundation for regulation according to the domestic economic and financial situation.

The third is to speed up the replenishment of bank capital. The Ministry of Finance has recently made it clear that it will support large commercial banks to supplement capital by issuing special treasury bonds. Local special bonds are also an important channel for small and medium-sized banks to replenish capital. This is also an important manifestation of the synergy between fiscal policy and monetary policy. Everyone knows that capital is the foundation for banks to serve economic growth, promote economic restructuring, and prevent various risks. National finance measures to supplement bank capital can enhance banks' ability to operate steadily, effectively serve the real economy and withstand risks. To a certain extent, it has also made up for the impact of falling financing costs in the real economy on banks' endogenous capital supplementation.

Thank you.

Economic Daily reporter:

The 2025 National Foreign Exchange Management Work Conference mentioned the need to implement more active and promising foreign exchange management policies. Just now, Deputy Director Li Bin also mentioned relevant content in his opening remarks. Excuse me, what are the next specific ideas and initiatives? Thank you.

Li Bin:

Thank you for your question, I'll answer that question. In 2025, the State Administration of Foreign Exchange will better coordinate high-quality development and a high level of security, establish a “more convenient, more open and safer” foreign exchange management system, adhere to reform and opening-up in a complex environment, prevent and control financial risks during reform and opening-up, better support the stabilization of foreign trade and foreign investment, and help the economy continue to recover for the better. Focus on the following four areas of work:

First, introduce more foreign exchange facilitation policies. Continue to promote trade foreign exchange facilitation policies for high-quality enterprises. The focus is on promoting them to regions and small and medium-sized banks that have previously benefited less, so that more high-quality small and medium-sized enterprises can enjoy the convenience of reducing documents and simplifying procedures. Combining the characteristics of e-commerce platforms and integrated foreign trade service enterprises, it can better support the return of export payments, simplify foreign exchange payment procedures such as logistics, warehousing, and returns, and raise the level of facilitation of foreign exchange fund settlement. We will also respond positively to the demands of some contract engineering companies and support them in unified management and independent allocation of funds for multinational and cross-regional engineering projects, thereby improving the efficiency of fund management.

Second, push forward foreign exchange management reforms for foreign direct investment. At present, China's cross-border direct investment has been basically convertible. We are studying the cancellation of the registration of upfront costs of foreign direct investment and domestic reinvestment registration, further improving the convenience of foreign direct investment capital exchange and creating a better environment for foreign-funded enterprises to expand their businesses in China.

Third, step up efforts to open up the foreign exchange sector. We will optimize fund management for overseas listings of domestic companies and simplify foreign exchange registration for overseas listings. Facilitated financing amounts for technology-based enterprises will be raised in due course to help science and innovation enterprises reduce financing costs. We will also continue to improve multinational companies' capital pool policies, facilitate the allocation and management of capital between domestic and foreign member companies, and improve the efficiency of the use of cross-border capital, thereby greatly reducing corporate financial costs. Support the strategy of upgrading the Pilot Free Trade Zone, support innovation in foreign exchange management in the Hainan Free Trade Port and the Guangdong-Hong Kong-Macao Greater Bay Area, and support the construction of international financial centers in Shanghai and Hong Kong.

Fourth, focus on improving supervisory capabilities and risk prevention and control levels under open conditions. On the one hand, to improve the monitoring and early warning system for cross-border capital flows, we will work with the People's Bank of China to strengthen countercyclical adjustment and forecast management in the foreign exchange market, resolutely correct procyclical behavior, resolutely deal with acts disrupting market order, resolutely prevent the risk of exchange rate overregulation, maintain the basic stability of the RMB exchange rate at a reasonable equilibrium level, and maintain the basic balance of payments. On the other hand, establish a more complete and effective foreign exchange supervision system, maintain a high-pressure crackdown on illegal foreign exchange activities, and maintain a healthy order in the foreign exchange market. Thank you.

Xinhua News Agency Finance Reporter:

The Central Financial Work Conference proposed that it is necessary to do a good job in “five major articles” on finance. What are the highlights of the People's Bank of China's work in this area in 2024? What other policy considerations are there in 2025? Thank you.

Xuan Changneng:

I ask Director Zou Lan to answer this question.

Zou Lan:

Thank you to the reporter for the question, I will answer your question. Doing a good job in the “five major articles” of technology finance, green finance, inclusive finance, pension finance, and digital finance is an important focus for the high-quality development of the real economy in financial services. Since the Central Financial Work Conference, the People's Bank of China, together with relevant departments, formulated and issued guidance documents in various fields, refined work measures, accelerated policy transmission, and made positive progress.

In the “Five Big Articles,” technology finance ranked first. I just explained in the opening remarks that last year, the People's Bank of China set up 500 billion yuan of reloans for technological innovation and technological transformation to continuously improve the intensity and level of financial support for technological innovation, further promote the construction of a pilot science and technology innovation reform zone, optimize the cross-border financing system mechanism for technology enterprises, and establish a diversified relay technology finance system. In terms of green finance, support tools for reducing carbon emissions have been optimized, and the scope of support will be extended to low-carbon transformation as a pilot in Shanghai to guide more credit resources to invest in green and low-carbon development. In terms of inclusive finance, the interest rate for small reloans to support agriculture was reduced from 2% to 1.75%, and the amount was increased by 100 billion yuan. Organize and implement five major financial actions to support comprehensive rural revitalization. It also continues to make efforts in pension finance and digital finance, continuously strengthening systems and market construction.

At present, the policy framework in all fields is basically sound, and structural monetary policy instruments have achieved full coverage in all five areas, and the results continue to show. Financial support continues to increase. At the end of 2024, loans for specialty and new enterprises increased 13% year on year, inclusive small and micro loans increased 14.6% year on year, agricultural loans increased 9.8% year on year, and green loans increased 25.1% year on year at the end of the third quarter of 2024. These loans were all significantly higher than the growth rate of various loans during the same period, indicating that the credit structure is being optimized at an accelerated pace. The availability of financing has improved markedly. The number of Inclusive Small and Medium WeChat accounts has exceeded 60 million, covering about 1/3 of the business entities; the loan rate for technology-based small and medium-sized enterprises is close to 50%. The cost of financing continues to be low. In December 2024, the weighted average interest rate for newly issued corporate loans was around 3.43%.

In the next step, the People's Bank of China will also further improve the top-level system design, formulate guiding opinions on financial “five major articles”, focus on key areas and weak links, and refine policy measures to comprehensively improve the quality and efficiency of financial services in the real economy. The first is to strengthen positive incentives, give full play to structural monetary policy tools and the leading and driving role of macrocredit policies, strengthen coordination with fiscal policies, and guide financial institutions to increase investment in credit resources and optimize credit structures. The second is to enhance the service capabilities of financial institutions, improve the internal incentive and restraint mechanisms of financial institutions, further enrich the financial product spectrum, and enhance risk assessment capabilities and the technical level of financial services. The third is to broaden financing channels, support enterprises to finance through markets such as bonds and equity, and increase the proportion of direct financing.

I'll answer those. Thank you!

21st Century Economic Report Reporter:

My question is, in terms of further enhancing RMB international currency functions such as cross-border payments, investment and financing, etc., what are the next steps for the People's Bank of China to consider?

Xuan Changneng:

Thank you for your question, I'll answer that question. In recent years, as the pace of diversified development of the international monetary system has accelerated, the endogenous demand for economic players to use RMB for trade settlement and investment and financing has continued to increase. Especially since the international financial crisis, this demand has continued to increase. In line with market demand, the People's Bank of China promptly adopted a series of measures to raise the level of facilitation to support the cross-border use of RMB, provide more currency options for cross-border trade and investment settlements for economic entities, and better serve the real economy. There are several characteristics: First, the policy is more “superior.” Together with the Foreign Exchange Bureau, we will continue to optimize fund management policies such as local and foreign currency fund pools, overseas loans from domestic commercial banks, and overseas listings for domestic enterprises to improve the convenience of using RMB across borders. Second, the level of openness is more “high.” “Cross-border Wealth Management Connect” has been launched in the Guangdong-Hong Kong-Macao Greater Bay Area, and policy arrangements such as multi-functional free trade account systems have been established in Hainan and Hengqin, improving fund management policies for qualified overseas investors, and actively promoting institutional openness. Third, the operation is more “convenient”. Continue to guide and promote commercial banks to optimize cross-border RMB business processes and improve business processing efficiency and service levels. Fourth, the Internet is more “perfect.” Continuously expand the RMB clearing bank network, expand participants and coverage areas of the RMB Cross-border Payment System (CIPS), and provide basic support for economic entities to use cross-border RMB.

Overall, thanks to the joint efforts of all parties, various indicators of the international use of RMB have been steadily improving, and the ability of cross-border RMB business to serve the real economy continues to increase. In terms of payment functions, RMB has now become the fourth largest payment currency in the world. Last year, RMB cross-border payments amounted to about 64 trillion yuan, an increase of 23% over the previous year. In terms of financing functions, RMB has become the world's top three trade finance currencies. In 2024, foreign-funded financial institutions and enterprises came to China to issue nearly 200 billion yuan of panda bonds, an increase of 32% over the previous year, and the issuance of offshore RMB bonds increased 150% year over year. In terms of reserve function, more than 80 overseas central banks or monetary authorities include RMB in foreign exchange reserves. In the offshore RMB market, Hong Kong's RMB deposit balance is over 1 trillion yuan, and the RMB loan balance is close to 700 billion yuan, all of which have reached historically high levels.

In the next stage, the People's Bank of China will continue to adhere to market-driven, mutually beneficial and win-win principles, coordinate development and security, and create a better environment for domestic and foreign entities to hold and use RMB. The first is to strengthen collaboration between local and foreign currencies, further improve the cross-border RMB usage policy, and enhance the convenience of handling cross-border RMB business. The second is to support investment and liquidity management in RMB, increase risk hedging tools, and support the construction of a RMB financial asset allocation center and risk management center in Shanghai. The third is to facilitate business entities to carry out cross-border financing activities in RMB, and to support the development of businesses such as RMB trade financing, overseas loans, and RMB bond issuance. Fourth, improve the offshore RMB liquidity supply mechanism, support the healthy development of the offshore RMB market, and consolidate and enhance Hong Kong's position as an international financial center and offshore RMB business hub. The fifth is to improve infrastructure arrangements for cross-border RMB use, rationally establish new RMB clearing banks, and continuously improve the functions and services of the RMB cross-border payment system.

That's all I answered, thank you all.

Xiaoli Shou:

Two other reporters raised their hands, last two questions.

Phoenix TV Reporter:

The People's Bank of China website just published financial statistics for 2024. How do you view the scale and structural characteristics of social financing in 2024? Thank you.

Zhang Wenhong:

Thank you for your question, I'll answer that question. At the end of 2024, China's social financing balance was 408.34 trillion yuan, an increase of 8% over the previous month, and the growth rate was 0.2 percentage points higher than the previous month. The annual increase in the scale of social financing was 32.26 trillion yuan, which is at a historically high level. From a structural point of view, the increase in the scale of social financing mainly has the following characteristics:

First, financial institutions have maintained a reasonable increase in loans to the real economy. RMB loans issued by financial institutions to the real economy increased by 17.05 trillion yuan throughout the year.

Second, the financial system continues to strengthen in line with fiscal strength, and government bond financing increased significantly over the same period last year, which is the highest level in history. In 2024, net government bond financing was 11.3 trillion yuan, the highest level in the same period in history, with a year-on-year increase of 1.69 trillion yuan. Among them, net financing of treasury bonds was 4.5 trillion yuan, an increase of 357.4 billion yuan over the previous year; net financing of local government bonds was 6.79 trillion yuan, an increase of 1.33 trillion yuan over the previous year.

Third, corporate bond financing was higher than the same period last year. In 2024, net financing of corporate bonds was 1.91 trillion yuan, an increase of 283.9 billion yuan over the same period last year.

Fourth, there was a year-on-year increase in trust loans in off-balance sheet financing. In 2024, trust loans increased by 397.6 billion yuan, an increase of 240 billion yuan over the same period last year. In addition, entrustment loans and undiscounted bank acceptance notes decreased by 57.7 billion yuan and 329.5 billion yuan, respectively.

Overall, the scale of social financing maintained reasonable growth in 2024, which strongly supported the recovery of the real economy. Thank you.

Xiaoli Shou:

One last question.

Securities Times Reporter:

My question is that bank foreign exchange exhibition reform has been introduced for a year, and supporting regulatory documents such as due diligence exemptions for banks in foreign exchange business and foreign exchange risk transaction reports have also been issued recently. I want to ask how things are going so far? And what are the next steps? Thank you.

Li Bin:

Thank you for your interest in the bank's foreign exchange exhibition work. The so-called bank foreign exchange exhibition business generally refers to activities such as identifying customers, reviewing data, and monitoring risks carried out by banks in the process of handling foreign exchange business for customers. In order to promote a high level of opening-up to the outside world and optimize cross-border financial services, in 2023, the State Administration of Foreign Exchange promoted bank foreign exchange reform. The exhibition industry reform put the identification of enterprises and other tasks ahead and strengthened ex post facto risk monitoring, changing the previous foreign exchange business processing method, which required documents to be reviewed one by one, so that high-quality customers can be exempted from reviewing documents, and banks can handle foreign exchange business for them with their instructions, achieving a better combination of improving efficiency and risk prevention and control, and bringing real convenience to enterprises.

In the year since the implementation of the reform, banks have actively participated, and the response from all sectors of society has been positive. Currently, the number of participating banks has increased from 4 at the beginning to 16, and coverage has gradually expanded to the whole country. Judging from market feedback and operating results, the goal of “reducing pressure” for banks and “reducing the burden” for enterprises was initially achieved.

First, the reform has clearly reduced the pressure on banks to conduct in-process audits. Banks no longer need a “single single review” or “a single single core” to handle foreign exchange business for high-quality enterprises. The pressure to review data has been drastically reduced, and the average business processing time has been reduced by more than 50%. Since customer risks are identified and classified, banks can also innovate and customize various facilitation service products for different customers, so they can meet customer needs more accurately.

Second, the reforms have further expanded the coverage of enterprises with facilitation policies. At present, 18,000 high-quality bank customers, including small and medium-sized enterprises, private enterprises, and foreign-funded enterprises, have been included, handling more than 260 billion US dollars in cross-border income and expenditure business according to instructions, further improving the efficiency of corporate capital turnover.

Third, the reforms have effectively improved the quality and efficiency of risk prevention and control. After the reform, banks can rely on more solid customer identification and classification to focus more on high-risk customers and businesses. At the same time, the ex post facto monitoring system can trace back cross-border transactions in a relatively comprehensive and timely manner to achieve early identification, early warning and early handling of abnormal transactions.

The reform of the bank foreign exchange exhibition industry is one of the basic and systematic tasks we have focused on promoting in recent years. Recently, we issued 3 supporting regulatory documents, including bank foreign exchange business due diligence exemption regulations and foreign exchange risk transaction report management measures, and guided the national foreign exchange market self-regulatory mechanism to issue 3 industry guidelines and specifications to further refine guidance on bank operations and promote the standardization and efficient implementation of bank reforms.

In the next stage, the State Administration of Foreign Exchange will insist on steady progress and steadily push forward the reform and expansion of the bank's foreign exchange exhibition industry. The first is to organize expansion in an orderly manner. We will guide banks that voluntarily participate in the reform, speed up the launch after conditions are ripe, and push banks that have already implemented reforms to gradually incorporate more branches, so that more enterprises can benefit from the reform. The second is to support banks to establish and improve post-factual monitoring systems, dig deeper into the potential of technology to empower them, give full play to the role of “probes” for early detection of bank risks, and maintain the bottom line of risk. The third is to strengthen the publicity, interpretation, and training of the newly issued supporting systems, in particular to promote the smooth and smooth implementation of due diligence exemption regulations for banks in foreign exchange business, and get good things done. Thank you.

Xiaoli Shou:

Thank you to all the publishers, and thank you to all our reporters and friends for participating. That's all for today's press conference. Bye everyone.

This article was selected from “China Net”; Zhitong Finance Editor: Xu Wenqiang.