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As part of its efforts to create a conducive monetary environment for economic recovery, China’s monetary policy this year has emphasized key areas. It has included lowering interest rates, optimizing the credit structure, and improving housing credit policies to ease repayment pressure for homebuyers. Data released by the People’s Bank of China on October 14 shows that in the first three quarters of this year, the country’s monetary policy has effectively supported economic growth.
According to the financial data, RMB loans increased by 16.02 trillion yuan in the first three quarters, while the total social financing increased by 25.66 trillion yuan. Specifically, RMB loans to the real economy accounted for an increase of 15.39 trillion yuan. By the end of September, the total social financing stock reached 402.19 trillion yuan, reflecting an 8.0% year-on-year growth, aligning closely with the expected economic growth and price level targets. Overall, China’s financial growth maintained a steady trajectory, providing robust support for high-quality development in the real economy.
Declining financing costs for enterprises and a resurgence in business confidence have been noteworthy trends this year. As part of its macroeconomic adjustments, China’s central bank has been employing a flexible and targeted monetary policy to support the economy, strengthen counter-cyclical adjustments, and improve the monetary policy framework. The bank has leveraged a combination of tools—including interest rates, reserve requirements, and bond transactions—to effectively serve the real economy and mitigate financial risks. In response to ongoing economic recovery, the People’s Bank made significant adjustments to its monetary policy in February, May, and July.
On September 27, the central bank announced it would lower the reserve requirement ratio (RRR) for financial institutions by 0.5 percentage points, excluding those already at a 5% reserve ratio. Following this cut, the weighted average reserve requirement ratio is approximately 6.6%. The same day, the bank adjusted the seven-day reverse repo operation rate from 1.70% to 1.50%, signaling increased efforts to stabilize economic growth.
Dong Ximiao, Chief Researcher at Zhongan Research Institute, highlighted that the People’s Bank’s policies focus on both supply and price. This recent RRR reduction is the second of the year and is expected to release about 1 trillion yuan in long-term liquidity. Moreover, policy interest rates were lowered by 20 basis points, marking the largest decrease in nearly four years.
As a result of these monetary policies, loan growth has remained stable. By the end of September, the total balance of foreign and domestic currency loans reached 257.71 trillion yuan, representing a 7.6% year-on-year increase, with RMB loans alone at 253.61 trillion yuan and an 8.1% growth rate. Notably, loan interest rates have been maintained at historically low levels, with the average weighted interest rate for new corporate loans at 3.63%, down about 21 basis points from the previous year. Similarly, interest rates for new personal housing loans decreased to 3.32%.
The favorable financial policies have resulted in declining financing costs for businesses, restored operational confidence, and improved investment activities. A representative from a petrochemical company in Huizhou noted that there has already been a cumulative effect from various policies throughout the year, which has driven down the company’s loan interest rate from 3.2% at the beginning of the year to 2.85%. Following the recent policy adjustments, the company plans to invest more in product development, market expansion, and talent acquisition.
With the rollout of several new policies, businesses optimistic about China’s economy are beginning to increase their investments. Recently, a clothing company in Dongguan received an influx of 39 million HKD from a Hong Kong investor who cited confidence in China’s economic development and favorable market conditions. Another major petrochemical project by a foreign firm in Guangdong is nearing completion, with plans for an additional 10 billion yuan investment this year.
Optimizing the credit structure has also been a key focus, enhancing financial support for the real economy. At a recent World Manufacturing Conference, Wuhu United Aircraft Technology showcased its innovative drone projects, which were made possible by strong financial backing. The project has achieved 30% completion, leading to active usage of new facilities.
Throughout the year, the People’s Bank has targeted essential sectors for high-quality development, establishing re-loans for technological innovation and upgrades to ensure that credit flows to critical areas and weaknesses in the economy.
A medical device company in Zhuhai, leveraging government support for technological upgrades, quickly enhanced its facilities and introduced new equipment, addressing capacity constraints and laying a solid foundation for market expansion.
As of the end of September, long-term loans in the manufacturing sector have reached 13.88 trillion yuan with a year-on-year growth of 14.8%, while loans to the high-tech manufacturing sector have also seen considerable growth. Dong Ximiao noted that credit structures are continually being optimized, with significant improvements in loans for small-to-medium enterprises and innovative firms.
The People’s Bank’s commitment to addressing housing finance challenges recently led to a directive aimed at easing borrower repayment burdens. In light of recent political discussions, policies around housing purchasing limits and existing loan rates have been revised to support a new development model in real estate.
On September 26, the central bank announced a series of measures to lower existing mortgage rates for commercial housing loans, with banks now preparing to implement these changes uniformly by the end of October.
Following these announcements, six major state-owned banks will adjust existing mortgage rates on October 25, which will affect all existing loans across various regions. Overall, the weighted average rate for existing mortgages stands at around 4.06%, and with the adjustments, borrowers are expected to benefit from substantial savings.
As estimates indicate potential annual savings of around 1,500 billion yuan for 50 million families through adjusted mortgage rates, this policy aims to significantly reduce borrower pressures and improve consumer capacity. Dong Ximiao affirmed the importance of collective agreement among multiple sectors to facilitate the success of these adjustments, reinforcing positive trends in the real estate market.
This report was covered by Wu Qiuyu for the People’s Daily on October 15, 2024.
