Chinese Central Bank Highlights Use of Structured Monetary Policy Tools for Window Guidance


The People’s Bank of China (PBOC) has touted the use of structured monetary policy tools to make adjustments to the credit structure of Chinese financial institutions and implement window guidance.

In a statement published on 19 August PBOC said that structured monetary policy tools had created a mechanism under which “financial institutions independently make loans and engage in accounts management; the People’s Bank subsequently provides reimbursements and quota restrictions, and related departments confirm use by conducting random inspections.”

According to PBOC the mechanism helps to coordinate the loans made by financial institutions with re-loans made by the central bank, which is of benefit to “incentivising financial institutions to optimise their lending structure, and achieving the results of targeted preferences for areas such as green development and tech innovation.”

PBOC provided a detailed account of how its structured monetary policy tools operate, via a protocol which involves:

  1. PBOC provides funds to financial institutions under a “loan first, borrow later” (先贷后借) model, instead of directly providing loans to enterprises. Financial institutions provide loans to enterprises independently in accordance with “market-based, rule-of-law-based principles.” These financial institutions then apply to PBOC for re-loans or incentive funds, which PBOC then provides to financial institutions on the basis of a set ratio of the loan volume or balance increase.
  2. Industrial authorities set the scope of support for sectors or industries, and financial authorities use existing statistical systems or special accounts to confirm that loans are used to support these sectors or industries. According to PBOC this method enables “each to employ their advantages, forming combined policy strength.”
  3. Follow-up inspection and correction mechanisms are established. Industrial authorities work with financial authorities to conduct random follow-up inspections and statistical monitoring. If they discover that loans made by financial institutions fall outside of the scope of support, authorities apply measures such as ledger compensation or retrieval of reloans, in order to prevent financial institutions making use of reloan funds in breach of regulations.