Has China's central bank made the Fed its model of emulation in Shanghai?

PBOC to provide emergency liquidity support to China's non-bank financial institutions.

The governor of the Chinese central bank (PBOC) has launched a policy initiative to drive internationalisation of the renminbi that bears a strong resemblance to a measure adopted by the US Federal Reserve to shore up dollar liquidity in overseas markets.

The move is consistent with a broader agenda pursued by PBOC governor Pan Gongsheng (潘功胜) to bring China’s monetary policy framework more closely in line with best practice for the world’s major central banks.

Related reforms have included the inclusion of government bond trading as part of open market operations; a greater focus on overnight interest rates as monetary targets, as well as measures for providing liquidity support to non-bank financial institutions under emergency conditions.

In this briefing:

• Providing liquidity to support renminbi internationalisation

• Becoming lender-of-last resort for shadow banks

• Key adjustments to China’s monetary policy execution

• What the PBOC governor won’t discuss

Providing liquidity to support renminbi internationalisation

The Lujiazui Forum, held annually in the eponymous financial district of Shanghai, has emerged as a key venue for the Chinese central bank to unveil landmark policy initiatives since Pan Gongsheng assumed office as governor.

One of the centrepiece measures from this year’s event has been PBOC’s launch of the Renminbi Repo Facility for Foreign and International Monetary Authorities (FIMA RMB Repo).

PBOC plans to make the repo facility available to central banks, international financial organisations and sovereign wealth funds outside of China, enabling them to use Chinese government bonds and other high-grade debt as collateral for renminbi funds.

The move supports the internationalisation of the renminbi by improving access to liquidity for select holders of high-grade Chinese debt, enhancing the appeal of such assets to overseas investors.

China’s own economists have frequently cited the scarcity of secure and liquid offshore assets as a major barrier to internationalisation of the renminbi.

The matter has prompted Chinese authorities to step up the issuance of offshore renminbi Treasury bonds since the start of the year.

At the 19th Asian Financial Forum held in Hong Kong in January, PBOC deputy governor Zou Lan (邹澜) said that China would seek to “increase the offshore supply of renminbi Treasuries and raise market liquidity.”

The launch of the FIMA RMB Repo also appears to be part of a broader theme of Pan Gongsheng adapting the innovations and practices of other central banks to China’s own needs and conditions.

The facility bears a noteworthy resemblance to the Federal Reserve’s own FIMA Repo Facility, which was introduced in 2020 to provide foreign central banks with dollar liquidity against holdings of US Treasuries.

In addition to the FIMA RMB Repo, Pan Gongsheng capitalised upon this year’s Lujiazui Forum to unveil two other measures to support renminbi internationalisation, by shoring up the status of Shanghai as a hub for forex trading and international finance.

PBOC will firstly launch a pilot program for offshore renminbi-forex trading in the Shanghai Free Trade Zone. The program will see six Chinese banks - including Agricultural Bank of China, Bank of China, Bank of Communications, China Construction Bank, ICBC and CITIC Bank - conduct offshore renminbi-foreign-exchange transactions via the China Foreign Exchange Trade System.

The Chinese central bank will also team up with the Shanghai municipal government to release the “Shanghai International Financial Center Development Offshore Finance Action Plan” (上海国际金融中心发展离岸金融行动方案), as a concerted program for shoring up Shanghai’s status as an international financial centre.

The Action Plan will seek to improve Shanghai’s institutional and business environment to better adapt it to offshore finance operations, including issues of offshore bonds and the provision of offshore trade finance services.

Becoming lender-of-last resort for shadow banks

The Lujiazui Forum also saw PBOC unveil plans to strengthen its ability to contain systemic risk in China’s financial system, via the launch of measures that follow the lead of the Fed in making emergency liquidity available beyond the confines of the traditional banking system.

Pan said that PBOC would research and develop a “macro-prudential tool to support non-bank liquidity under specified conditions.”

The initiative will use instruments such as swaps to provide liquidity to non-bank financial institutions, under conditions when they suffer from “collective liquidity difficulties that could trigger systemic risk,” arising from contingencies such as asset market meltdowns.

Pan stressed that the new facility will not comprise a regular supply of liquidity, but will only be made available under “specified conditions.”

In order to further prevent the moral hazard associated with such backstops, Chinese financial institutions will need to satisfy macro-prudential requirements and provide high-grade collateral to be eligible for emergency support.

In expanding the remit of PBOC to support non-bank financial institutions, Pan appears to be following the lead of the Fed, as well as the example set by central banks from an earlier stage of their history.

Today’s central banks are entrusted with the provision of an elastic money supply that keeps inflation steady while supporting adequate levels of economic growth.

Throughout much of their history, however, the core concern of central banks was to serve as lenders of last resort to fractional reserve systems that were vulnerable to mass withdrawals by depositors. This meant providing emergency liquidity to halt bank runs dead in their tracks, and thus prevent broader economic meltdowns.

Tighter financial regulations and the launch of deposit insurance saw the role of lender-of-last-resort recede in importance for US Fed in the wake of the Great Depression.

The 2008 Global Financial Crisis (GFC) forced the Fed to re-assume this historic role, albeit for multiple other players in the American financial sector, due to the emergence of the shadow banking system that lay at the core of the US subprime meltdown.

This entailed the use of emergency lending powers that enabled the Fed to adopt the unprecedented move of supplying funds to non-bank financial institutions - such as money market funds and primary dealers, who had played key roles in channeling short-term debt to capital market investments.

The decision to allow PBOC to provide liquidity to China’s non-bank financial institutions would appear to be a similar measure, although one adopted as a precautionary move for extreme contingencies, as opposed to an ad hoc emergency response.

Pan looks to have made it a long-term priority for PBOC to expand its role in supporting China’s capital markets, as well as preventing systemic risk by opening channels of liquidity to non-bank players.

At the 2025 Financial Street Forum Annual Conference held in October, Pan called for arrangements to provide liquidity to such institutions under contingency conditions, highlighting the need to address risk management shortcomings and better strengthen the financial safety net.

In October 2024 PBOC introduced two new tools to support China’s capital market development, including the Securities, Funds and Insurance Companies Swap Facility (SFISF).

The facility allows eligible non-bank financial institutions to exchange assets including stock ETFs and equities for highly liquid assets such as treasury bonds and central bank bills, improving their resilience of their balance sheets.

Key adjustments to China’s monetary policy execution

Pan Gongsheng also announced fine-tuning of China’s monetary policy framework that imply bringing it more closely in line with standard practice for the world’s major central banks.

PBOC plans to tighten the corridor for rates on its temporary overnight repo and reverse repo facilities, to 25 basis points on either side of its seven-day reverse repo rate.

This narrows the corridor to 50 basis points from 70 basis points previously, when overnight rates could range from up to 20 basis points below and 50 basis points above the seven-day reverse repo rate.

The central bank also plans to expand its use of overnight reverse repo operations and introduce additional overnight reverse repo instruments, building on facilities first launched in July 2024, in order to better adapt to current market conditions.

“Overnight operations offer greater flexibility and can better achieve the goal of ‘smoothing out’ liquidity,” said one observer to Xinhua.

“The timely increase in overnight reverse repo operations is both in line with market demand and conducive to enhancing the precision and effectiveness of short-term interest rate control.”

The moves come just as PBOC places greater emphasis on the overnight interbank repo rate (DR001) when it comes to measuring liquidity, as opposed to solely using the rate for seven-day interbank repo loans (DR007).

Beginning in 2025, PBOC began to make reference to the DR001 instead of just the DR007 in its quarterly reports on China’s monetary policy implementation.

In January 2026, PBOC deputy governor Zou Lan said that in future the central bank would “guide the overnight interest rate to operate near the level of the policy rate,” highlighting a focus on the overnight rate as the target for policy guidance.

During the Lujiazui Forum, PBOC officially announced that the trigger for adjustments to its OMO would be “the money market overnight rate (DR001) remaining continually lower or higher than the corresponding [policy] rate.”

The changes have prompted some analysts to speculate that the PBOC will eventually shift toward an operating framework where the overnight rate becomes the main policy rate.

Such an evolution would bring China’s monetary policy framework closer to those used by other major central banks such as the Fed, where overnight rates serve as the principal anchor for short-term liquidity conditions.

For now, however, Pan has reiterated the status of the the seven-day reverse repo rate as PBOC’s primary policy rate.

He formally designated it as such at the 2024 Lujiazui Forum, reducing the signalling importance of the medium-term lending facility and strengthening the role of short-term interest rates in China’s monetary policy transmission.

What the PBOC governor won’t discuss

Another noteworthy aspect of Pan’s speech at this year’s Lujiazui Forum was what the governor refrained from discussing.

The PBOC governor gave little attention to additional broad-based monetary easing or further policy-rate reductions, despite Beijing’s adoption of a more supportive macroeconomic policy stance since late 2024.

One reason may be that China’s primary policy rate already stands at a comparatively low 1.4%, following PBOC’s most recent cut in May 2025. Deflationary pressures would also reduce the effectiveness of nominal rate cuts, by increasing real borrowing costs and debt burdens.

An equally important consideration may be the fact that both the DR001 and DR007 rates have persistently traded below the policy rate in 2026.

Some Chinese analysts interpret this gap as evidence of weak demand for credit, reflecting factors including the property downturn, subdued private-sector confidence and ongoing balance-sheet adjustments.

If this is the case, further reductions to borrowing costs alone may not be sufficient to revive demand for leverage amongst Chinese households and businesses.

Pan did, however, highlight at a broader shift away from the credit-intensive growth model that characterised earlier stages of China’s development.

In the past, China depended on industries whose “economic growth exhibited obvious credit-intensive and debt-intensive characteristics.”

As China has moved towards high-quality development, however, Pan contends that “bank loans required per unit of economic growth have decreased accordingly.”

“Slowing down and improving the quality of loans could become one of the new normal modes for macroeconomic operation,” he said.