As the calendar turns to 2024, China finds itself navigating through a mix of stable financial growth and prudent monetary policy adjustmentsThe People's Bank of China (PBOC) has executed a series of substantial monetary policy changes aimed at sustaining economic recovery and enhancing the quality of financial services directed towards the real economyWith a commitment to encouraging domestic demand and optimizing credit structures, the PBOC has embarked on a mission to ensure that financial resources are readily accessible to both businesses and households.

In a recent address, Deputy Governor of the PBOC, Xuan Changneng, outlined the central bank's approach to maintaining a supportive monetary stanceThe PBOC has made notable adjustments four times this year, marking a significant shift in its policy directionThis includes a cumulative reduction of the required reserve ratio by 1 percentage point and a decrease in the central bank's policy interest rates by 0.3 percentage points—both the largest such adjustments seen in recent years

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The strategic implementation of various monetary tools aims to ensure liquidity remains at an adequate level, promoting reasonable growth in the scale of social financing and the overall money supply.

A recent report from the Bank of China Research Institute reveals promising trends within the corporate and household sectorsSpecifically, bill financing saw an increase of 300.3 billion yuan in December 2024. Similarly, long-term loans for residents grew consistently throughout the fourth quarter, with increases of 39.3 billion yuan, 66.9 billion yuan, and 153.8 billion yuan noted in successive months, illustrating a broadened access to credit for consumers.

Looking ahead to 2025, notable adjustments in macroeconomic policies are anticipated, particularly in leveraging internal demand to fulfill the financial requirements of enterprises and householdsResearcher Liang Si from the Bank of China emphasizes that the central bank's conference in 2025 will prioritize a comprehensive approach utilizing various monetary tools which will adapt to both domestic and international economic conditions

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The goal is to ensure that the growth of social financing, along with the money supply, aligns with the economic expansion and inflation expectations.

Moreover, the Ministry of Finance has hinted at an increase in the scale and ratio of fiscal deficits, suggesting a targeted effort to stimulate financial growthDue to a potential base effect, key financial indicators are projected to show noticeable improvement, further supporting a stable financial environment.

Xuan Changneng reiterated the PBOC's commitment to a moderately loose monetary policy in 2025. This will involve a concerted use of diverse monetary instruments, including interest rates and reserve requirements, to sustain liquidity and cultivate a favorable financing landscape in societyBy enhancing the execution of interest rate policies, the aim is to further reduce the comprehensive financing costs facing businesses and consumers alike.

In addition to monetary strategies, the PBOC is focused on five pivotal areas: technological finance, green finance, inclusive finance, pension finance, and digital finance—collectively termed the "Five Key Financial Articles." The advancement of these sectors plays a crucial role in aligning financial services with high-quality real economy development.

Since the central financial work conference, tangible progress has been reported in implementing these five areas

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With an inclusive policy framework now established, structural monetary policy tools are effectively supporting each areaAs of the end of 2024, loans to specialized small and medium enterprises grew by an impressive 13%, while inclusive microloans increased by 14.6%. Agricultural loans also saw a notable growth rate of 9.8%, and green loans surged by 25.1% by the third quarter of 2024. Such growth rates surpass those of general loans, which points to an accelerated optimization of the credit structure and enhanced availability of financing options for diverse sectors.

The 2025 working conference of the PBOC emphasizes the need for improved institutional arrangements for the Five Key Financial ArticlesThere is a call for a scientific application of structural monetary tools and enhanced coordination with fiscal policies to amplify financial support for technological innovation and consumer promotion.

While financial growth and availability take center stage, the importance of risk prevention remains equally vital

The China National Financial Regulatory Administration has underscored its emphasis on preventing risks, overseeing stringent regulatory practices, and fostering growthIn their recent conference, they outlined six critical work priorities for 2025, with three focusing specifically on risk management and mitigation.

Among the key strategies outlined are the acceleration of reforms for small and medium financial institutions, aimed at tackling risks swiftly and efficiently through a coordinated effortThe focus also extends to effectively mitigating financial risks in priority sectors, with an emphasis on expanding financing coordination mechanisms in urban real estate, while simultaneously preventing and resolving local government debt risksFurthermore, there’s a stringent campaign against illegal financial activities aimed at preserving market integrity.

The PBOC has also committed to refining its macro-prudential policy framework, enhancing its ability to assess systemic financial risks, and broadening its toolkit for macro-prudential measures

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