Economic Daily:

China's economic development is facing and will face challenges and opportunities. Given this, how will the central bank determine the orientation of monetary policy? Thank you. 

Pan Gongsheng:

I believe the vast majority of journalists here today would like to ask the same question, which is very important and is of great public concern .

In 2023, China's economy witnessed rapid recovery after the country's smooth transition in its COVID-19 response. The Chinese economy sustained its recovery momentum, and steady progress was made in pursuing high-quality development. According to data released recently by the NBS, China's GDP grew 5.2% last year, sustaining high-speed growth. China's economy is still facing some difficulties and challenges, such as the aforementioned lack of effective demand, overcapacity in some industries, weak market expectations , and external uncertainties. However, there are many positive factors from the perspective of the central bank. We should adopt a big-picture mind. China's monetary policy was prudent over the past few years compared to some developed economies which “”tend to make drastic changes to their monetary policy Moreover, the country's monetary policy adjustment and the transmission mechanism have improved, which has created favorable conditions for supporting its economic growth in a sustainable way.

There is currently ample space for monetary policy. We will ensure a balance between short-run and long-run equilibrium, maintain steady growth while guarding against risks, and maintain a fine balance between internal and external equilibrium. We will strengthen counter-cyclical and cross-cyclical adjustments, and create a good monetary and financial environment for high-quality economic development. The central bank will lower the reserve requirement ratio (RRR) by 50 basis points on Feb. 5 to inject long-term liquidity of about 1 trillion yuan ($140 billion) into the market. The central bank will also lower the interest rates for re-lending and re-discount for loans to the agriculture sector and small enterprises by 0.25 percentage point from tomorrow. Moreover, we will continue to promote a steady reduction in social comprehensive financing costs. I'd like to make a detailed introduction from the following four aspects:

First, we will maintain the growth of total social financing within a reasonable range. We will continue to make use of tools for improving liquidity, including the RRR, re-lending and re-discount facilities, the medium-term lending facility and open market operations, in a bid to provide strong support for promoting the growth of credit and social financing within a reasonable range. China's average RRR is 7.4%, meaning China still has ample room to maneuver compared to other major economies. The RRR is an effective tool to supplement medium- and long-term liquidity in the banking system. The lowering of the RRR by 50 basis points will take effect on Feb. 5, which will inject long-term liquidity of about 1 trillion yuan ($140 billion) into the market.

Second, we will focus on equilibrium of both the interest rate and foreign exchange rate of the RMB. Monetary policy operations will mainly serve the domestic economy when it comes to interest rates. There is still a gap between current price levels and price targets. You may be aware that major Chinese banks cut deposit rates in November and December. We will lower the interest rates for re-lending and re-discount for loans to the agriculture sector and small enterprises to 1.75% tomorrow, down from 2%. All these measures will lower the loan prime rate, or LPR, a market-based benchmark lending rate. Moreover, expectations that the U.S. Federal Reserve will shift its monetary policy can help expand China's room for monetary policy operations.

We will maintain the flexibility of the foreign exchange rate of the RMB, and ensure that the exchange rate serves as an automatic stabilizer in adjusting the macro economy and for the balance of payments. We will adhere to the principle that the exchange rate should be mainly determined by the market, and prepare for worst-case scenarios. Efforts will be made to expand policy tools to deal with the situation, and prevent unilateral consistent expectations and their self-reinforcement. By doing so, we aim to keep the RMB exchange rate basically stable at a reasonable and balanced level.

Third, we will improve efficiency of monetary policy in terms of structure. Increased efforts will be made to manage the relationship between quantity and structure, and between the existing amount and the incremental amount, in a bid to support the "five priorities." Credit lines for inclusive loans to micro and small businesses will be raised from 10 million yuan per borrower to 20 million yuan per borrower. We will continue to leverage support tools for inclusive loans to micro and small businesses and the targeted re-lending facilities to boost public-interest elderly care services. We will also increase the re-lending and re-discount quotas for the agriculture sector and small enterprises, and expand carbon-reduction support tools to ensure that more enterprises in more areas can receive support. Furthermore, efforts will be made to integrate existing tools and plans and develop new ones for supporting technological innovation and digital finance. Following market-oriented and law-based principles, we will support debt restructuring and other methods to revitalize financial resources that have been inefficiently allocated, so as to make better use of funds.

Fourth, we will ramp up efforts to improve policy coordination and pool strengths. The overall debt scale of government departments, especially that of the central government, is not high compared to some other countries. There is still ample room for proactive fiscal policies. China issued an additional 1 trillion yuan (about $137 billion) in treasury bonds in the fourth quarter of 2023, and the large majority of them will be used in 2024, in an effort to let investments really work. Given the low cost for issuing government bonds and a lower share of domestic holdings of government bonds, there is much room for increasing government bonds purchases. China's monetary policy is more capable of maintaining liquidity ample, issuing large-scale government bonds and supporting investment projects.

Thank you.