SCIO briefing on financial policy package to stabilize the market and expectations

Yicai:

Mr. Pan just mentioned that structural monetary policy tools will be created and vigorously implemented, which are expected to play a positive role in economic structural adjustment. Could you please elaborate further on this? Thank you.

Pan Gongsheng:

Traditionally, monetary policy is mainly a tool for aggregate management. However, in the operation of the Chinese economy, as everyone knows, many contradictions and challenges are structural, and if the structure is not adjusted properly, it is difficult for aggregate control to be effective. Structural monetary policy tools are helpful in promoting the resolution of some structural contradictions and problems. In recent years, the PBC has actively explored this area. Following the principles of "focusing on key areas, taking reasonable and appropriate steps, and knowing when to introduce and withdraw," we have launched several structural monetary tools, gradually forming a monetary policy framework with aggregate tools as the mainstay and structural tools as a supplement. As of the end of April, there were a total of nine structural policy tools, mainly focusing on key areas, major strategies and weak links of the national economy. The outstanding balance was about 5.9 trillion yuan, accounting for 13% of the PBC's balance sheet, which is at a reasonable level.

Structural monetary policy tools, commonly known as relending, are loans provided by the central bank to financial institutions. These tools are usually embedded with incentive mechanisms to guide commercial banks to independently issue loans to market entities. In recent years, guided by structural monetary policy tools, the credit allocation structure of financial institutions has undergone a qualitative change. Everyone is well aware that in previous years, commercial banks had significant risk exposures in areas such as real estate and local financing vehicles on their balance sheets. In recent years, such risk exposures have gradually converged. The intensity, suitability, and precision of financial support for the real economy have significantly improved.

This time, we are introducing and implementing a series of structural monetary policy tools, which involve both an increase in scale and preferential pricing, to better leverage their guiding effect.

First, we are lowering the interest rates on structural monetary policy tools by 25 basis points. The interest rates on structural monetary policy tools such as the agricultural and small loans, technological innovation and transformation loans, carbon emission reduction support tools, stock repurchase and increase loans, and affordable housing loans will be lowered from the current 1.75% to 1.5%. Meanwhile, the interest rate on pledged supplementary lending to policy banks will be reduced from 2.25% to 2%.

Second, we are creating a 500 billion yuan relending tool for service consumption and elderly care. At present, the focus of China's economic policy is on expanding domestic demand and vigorously boosting consumption, with service consumption being an important point for upgrading and expanding consumption. In order to enhance and improve the supply of service consumption, the PBC has established the "service consumption and pension reloan" tool to encourage and guide financial institutions to increase financial support for key areas of service consumption such as accommodation, catering, culture, entertainment, education and the pension industry. It also collaborates with fiscal and other industrial policies to better meet the needs of the public for consumption upgrading. This tool is also an innovative measure by the PBC to support boosting consumption, with a quota of 500 billion yuan.

Third, we will raise the relending quota for sci-tech innovation and technical transformation from 500 billion yuan to 800 billion yuan. This tool was launched in April 2024 by the PBC, in collaboration with the NDRC and Ministry of Science and Technology, with an initial quota of 500 billion yuan. It has effectively supported tech-focused SMEs and technical transformation and equipment renewal in key areas. This time, we will increase the relending quota by 300 billion yuan, bring it to 800 billion yuan, supporting the expansion of the "two renewal" policies.

Fourth, we will increase the relending quota for agriculture and small businesses by 300 billion yuan. With this increase, the total quota for such relending will reach 3 trillion yuan. Combined with the reduction in the relending interest rate this time, this will have a coordinated volume-price effect, further supporting commercial banks in expanding lending to agricultural, micro and small enterprises, and particularly privately owned SMEs.

In the future, based on the economic and financial conditions and the effectiveness of current tools, we may expand the scale, refine the policy features, or introduce new policy tools. Thank you.