“Control the Sluice Gate of the Money Supply”: PBOC Monetary Policy Report


The 2018 Q1 China Monetary Policy Execution Report (2018年第一季度中国货币政策执行报告) issued by the People’s Bank of China (PBOC) on 11 May flags the maintenance of stable and neutral monetary policy moving ahead, while also pointing to the need to “control the sluice gate of the money supply.”

These pronouncements are consistent with the themes enunciated by China’s financial regulators at the start of 2018.

According to the report the Chinese central bank will continue to focus upon the three missions of servicing the real economy, preventing and controlling financial risk and deepening financial reform,

PBOC said it will also “innovate mentalities and methods for financial control, maintain the continuity and stability of policy, implement stable and neutral monetary policy, focus upon guidance of expectations, maintain rational and stable liquidity, and operate a neutral and moderate monetary and financial environment for supply side structural reforms and high-quality growth.”

The report outlines policy stances in six key areas:

i) Maintain stable and neutral monetary policy, control the sluice gate of the money supply. 

“On the one hand it is necessary to effectively control the yardstick of liquidity, in order to deleverage and prevent and resolve financial risk.

“On the other hand, comprehensive consideration must be given to changes in the macro-economy, strengthening of policy co-ordination, flexible use of a combination of multiple monetary policy tools, rational arrangements of tool combinations and operating rhythms, and maintenance of rational and stable liquidity.”

The PBOC report also said that it plans to include the interbank certificates of deposit issued by financial institutions with total assets of under 500 billion yuan in assessments starting from the first quarter of 2019.

ii) Expedite structural optimisation, support economic structural adjustments and model changes and upgrades

“Effectively provide financial services to advance model changes and upgrades of the manufacturing sector, and model changes and upgrades of the infrastructure, rail and other key sectors and spheres; expand the vigour of financial support for focal areas in the national economy including  new consumer areas such as aged care, education and health, as well as strategic emerging industries including entrepreneurship and innovation, science and technology, culture and maritime economies.”

iii) Further deepen interest rate marketisation and reforms of mechanisms for the formation of RMB exchange rates.

“Raise the efficiency of the allocation of financial resources, and improve mechanisms for financial adjustment and control.”

iv) Improve the financial market system, pragmatically make use of the roles of the financial market with respect to stable growth, structural adjustment, expediting reform and risk prevention.

v) Deep reform of financial institutions.

According to the report specific policy themes will include: continuing to deepen reform of large-scale commercial banks and other large-scale financial institutions, improving corporate governance, and standardising the relationships between shareholders associations, the board of directors, the board of supervisors and management.

vi) Effectively prosecute the war for the prevention and dissolution of major financial risk.

“Clarify schedules and maps, marshal resources for the prioritised handling of problems that could potentially impact economic and social stability and trigger systemic financial risk.”