Tide News: 

As China continues to focus on economic growth in 2023, what monetary policies can we expect the PBC to implement in support of high-quality economic development? Thank you. 

Yi Gang:

This is a question everyone is concerned about. Monetary policies matter in support of high-quality economic development. The Central Economic Work Conference proposed the adoption of prudent monetary policies. Looking back on what we did over the past few years, we can gain a clear understanding of the key points in taking our future measures. There are several features in how momentary policies have supported high-quality economic development in recent years. 

First, our monetary policies have effectively supported the real economy in terms of economic aggregate, which is very important. The monetary policy, as part of macro policy, must adequately support the economic aggregate. Since 2018, we have reduced required reserve ratios 14 times and injected more than 11 trillion yuan to maintain long-term, reasonable, and ample liquidity. We maintained a reasonable increase in total credit, which played a crucial role in stabilizing employment and meeting basic living needs. We have created a favorable monetary and credit environment specifically for the maintenance of operations of micro and small-sized enterprises and market entities. The core of our policy lies in keeping price levels stable, which requires us to ensure that the M2 money supply and aggregate financing should generally increase in step with the nominal growth of GDP. This enables us to maintain a suitable aggregate monetary supply to keep price levels stable in China. 

Second, in terms of interest rate policies, mainly considering the domestic economy, we have kept a reasonable level of real interest rates to moderately lower financing costs. Let us review what we have achieved in the past several years. In 2018, when central banks worldwide raised interest rates, we kept a stable interest rate. In 2020, facing the impact of the COVID-19 pandemic, major central banks around the world lowered interest rates substantially. The PBC cut interest rates by 20 to 30 basis points while keeping them stable. Particularly in 2022, due to high inflation worldwide, major central banks significantly raised interest rates. In comparison, the PBC didn't raise interest rates but rather reduced them twice by 20 to 50 basic points. Meanwhile, loan prime rates by financial institutions were also reduced twice. Therefore, our financing costs last year were reduced, which greatly supported the real economy. Last year, the average interest rate of new loans for enterprises was 4.17%, 1.28 percentage points less than in 2018. The interest rate of inclusive loans to small and micro businesses was reduced from 6.3% in January 2018 to 4.9% in December 2022, both at historically low levels. We also supported micro and small-sized enterprises to lower their financing costs. 

Third, regarding the financial structure, we have shored up support for major sectors and weak links. We have upheld the principle proposed by the central government to work unswervingly both to consolidate and develop the public sector and to encourage, support, and guide the growth of the non-public sector. Our support has been extended to private enterprises and micro- and small-sized enterprises. In response to the difficult times caused by the COVID-19 pandemic, we have rolled out policies to assist micro and small-sized businesses by deferring principal and interest repayments on loans and providing collateral-free loans. These measures have been instrumental in ensuring the operation of market entities as well as employment. We have introduced a series of structural monetary policies that focused on the high-quality development of green finance, scientific and technological innovation, and infrastructure construction, as well as ensured the delivery of pre-sold housing projects. This year, we will further intensify efforts in these four aspects. 

Going forward, on the one hand, the total amount of money and credit should be moderate, and the pace should be stable to consolidate the results of the decline in real loan interest rates. On the other hand, the role of structural monetary policy should also be played moderately, and strong support should continue to be given to inclusive finance lending to micro and small businesses, green finance, scientific and technological innovation, and other areas.

The above is my brief answer to the focus of monetary policy to support high-quality development. Thank you.