Chinese Central Bank Commits to Continued Use of Structured Monetary Policy to Support Private Enterprise and Manufacturing

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The People’s Bank of China (PBOC) has flagged the continued use of structured monetary policy tools that channel credit towards specific economic sectors in its latest quarterly monetary policy report.

In its “2022 Q4 China Monetary Policy Execution Report” (2022年第四季度中国货币政策执行报告), PBOC said that in future it would “continue to employ the incentivising and guiding role of structural monetary policy tools…maintain the stability of re-loan and re-discount policies, and continue to provide inclusive and continuous financial support to agriculture-related areas, micro-and-small enterprises, and private enterprises.

“[We] will implement inclusive micro-and-small loan support tools, and maintain financial support for micro-and-small enterprises,” the Report said.

“We will make effective use of technological innovation re-loans and special re-loans for capital equipment upgrade and improvements, and effectively satisfy the credit demand for equipment upgrades and improvements from the manufacturing industry, social services sector, small, medium and micro enterprises, and individual industrial and commercial registrants.”

PBOC also said that it would “organically combine the implementation of the strategy of expanding domestic demand with deepening supply-side structural reforms, and expand the intensity of macroeconomic policies.

“We will strengthen regulation and control, build a modern central banking system, give full play to the effectiveness of monetary and credit policies, focus on stabilizing growth, employment, and prices, and promote financial support for the real economy to achieve an effective improvement in quality and a reasonable increase in quantity, in order to develop socialism in a comprehensive manner.”

The Report said that in 2022 China’s prudent monetary policy has achieved positive results, which had given robust support to economic stabilization and improvement by achieving rational growth in the money supply and credit.

In 2022, new renminbi loans totalled 21.31 trillion yuan, for a year-on-year (YoY) increase of 1.36 trillion. As of the end of last ear year, outstanding renminbi loans, the broad money supply (M2), and total social financing had seen YoY gains of 11.1%, 11.8% and 9.6% respectively.

PBOC also touted ongoing improvements to China’s credit structure. As of the end of last year, the balance of financial inclusion micro-and-small loans and medium and long-term loans to the manufacturing industry saw YoY increases of 23.8% and 36.7% respectively.

The cost of corporate finance and personal consumption credit has also stabilized and declined. The weighted average interest rate for corporate loans in 2022 was 4.17%, for a YoY decline decrease of 0.34 percentage points. The average interest rate for new personal home loans in December was 4.26%, for a decrease of 1.37 percentage points compared to the same period in 2021.

The renminbi exchange rate floated in both directions and remained basically stable at a reasonable and balanced level. At the end of the year, the central parity rate of RMB against the US dollar was 6.9646 yuan.