II. Monetary Policy during the Next Stage
The PBC will earnestly implement the decisions of the Central Economic Work Conference and the National Financial Work Conference. According to the strategic arrangements of the Central Committee of the Communist Party of China and the State Council, the PBC will adhere to the guideline of seeking progress while maintaining stability and to the overall principle of stable macro policies and flexible micro policies. Centering on the three main tasks of serving the real economy, preventing financial risks, and deepening the financial reforms, the PBC will be innovative in thinking and methodology in terms ofits policy design and conduct, and it will maintain policy consistency and stability. The PBCwill implement a prudent and neutral monetary policy andwill ensure that policy measures are better targeted and more effective so as to manage aggregate demand in the supply-side structural reforms and to create a neutral and proper monetary and financial environments for the structural reforms. Greater emphasis will be placed on reforms and innovations as well as on measures to integrate the reforms with macro adjustments, to combine monetarypolicy conduct with the deepening of the reforms, and to enable the market to play a decisive role in resource allocations. The mode of monetary policy conduct will be improved to shift to the use of price instruments and transmissions, to improve the macro-prudential policy framework, and to straighten out the policy transmission channels and mechanisms. Efforts will also be made to beef up the real economy while curbing the excessive activities of the fictitious economy, to focus on financial risk management, to strengthen coordination of financial regulation, to enhance the efficiency and quality of financial services in support of the real economy, and to safeguard the bottom line of preventing systemic financial risks.
First, aggregates will be kept at a stable level while a combination of price tools, quantity-based tools, and macro-prudential policies will be adopted to enhance preemptive adjustmentsand fine-tunings and to properly manage the supply of money. In view of the changes in how money is supplied and the financial innovations, the PBC will closely monitor the potential impact of changes in the domestic and international liquidity situations, more precisely monitor the actual financing flows in the economy, employ a number of flexible monetary policy instruments, and arrange a combination of instruments in properly paced operations to “shave off mountain peaks and to fill valleys” in liquidity so as to maintain its stabilityand to strike a balance between growth stabilization, structural adjustments, and aggregate management. Macro-prudential management will be enhanced through effective macro-prudential assessments, and explorations will be conducted to include more financial activities and financial markets in the framework of macro-prudential management. In order to better capture the dependence of financial institutions on inter-bank financing and to guide the liquidity management of financial institutions, beginning from the first quarter of 2018 inter-bank CDswith maturities of less than one year issued by banks with assets of more than RMB 500 billion will be included in the inter-bank liabilities indicator of the macro-prudential assessment. Other banks will be monitored on a continuous basis and relevant requirements will be put forward when appropriate.
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Second, measures will be adopted to facilitate structural optimization to support economic structural adjustments, transformation, and upgrading. In a bid to provide more efficient and better-quality financial services to the real economy, continued efforts will be made to optimize the direction and structure of liquidity, reinforce the role of credit policy, promote supply-side structural reforms, channel more financial resources to key areas and weak links in economic and social development, facilitate financing, and lower costsin the real economy. Continued support will be given to growth stabilization, structural adjustments, and efficiency improvements in the various industries. Financial services will be provided to support the endeavor to turn China into a manufacturing power. Financial services will be provided earnestly for capacity reductions in the iron, steel, and coal and thermal power industries. Financial services will be delivered on a continuous basis for infrastructure building and for the upgrading and transformation of key areas and industries, such as railways and shipbuilding. Greater financial support will be provided to major national strategies, such as the coordinated development of Beijing, Tianjin, and Hebei, and to emerging consumption, such as elderly care.Based on market principles and in accordance with the sustainability and the principle of mutual benefit, a variety of financing and investment will be used to provide financial support for the Belt and Road Initiative. Quality financial services will be provided to new types of entities in the agricultural sector, the pilot program of collateralized lending by contracted farmland operational rights and rural home property rights will be advanced. Financial institutions will be guided to beef up support for agricultural infrastructure, integration of the primary, secondary and tertiary industries, urbanization and other key areas, and to strictly limit credit flows for speculative home purchases.Monetary and credit policy support will be improved for financial inclusion, and the role of credit policy to support central-bank lending, various policy parameters of macro-prudential assessments, and credit policy assessments will be tapped to provide positive incentives and guides to the financial inclusion business so as to improve financial services for small and micro enterprises, rural areas, agriculture, farmers, and remote regions. The financial sector participation mechanism for poverty alleviation will be improved through an assessment of the effects of targeted poverty reduction and the establishment of demonstration areas for targeted poverty alleviation involving the financial sector. Targeted poverty alleviation will be reinforced, and financial institutions will be guided to increase credit deliveries to poor areas.The special project of account receivable financing for small and micro enterprises will be carried out to optimize their financing environment. Implementation of guaranteed lending to start-up firms will be enhanced and pilot programs for connecting finance with science and technology will be further developed. Efforts will be made to actively explore a market-based long-term mechanism for providing financial services for entrepreneurship and innovations and to step up financial support for key sectors in the national economy, including science and technology, the cultural industry, consumption,and the emerging strategic industries.
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Third, the market-based interest-rate reform and the RMB exchange-rate regime reform will continue so as to improve the allocation of financial resources and to improve the financial regulation system. Financial institutions will be urged to strengthen their internal control systems and to improve their capabilities for independent and rational pricing and risk management. Measures will be adopted to develop market-based benchmark rates, to improve Government securities yield curves, and to continuously improve the market-based interest-rate pricing mechanism in order to deepen the financial market. The PBC will explore the interest-rate corridor mechanism, enhance the capability of interest-rate adjustments, and straighten out the transmission from the central-bank policy rates to the financial market and the real economy. Oversight of the irrational pricing behavior of financial institutions will be strengthened. The important role of the market interest-rate self-disciplinary mechanism will be tapped. Effective approaches will be adopted to regulate interest-rate pricing behavior, while industrial self-discipline and risk prevention will be reinforced to maintain order for fair pricing. The market-based RMB exchange-rate regime will be further improved to allow market forces to play a greater role, to enhance the two-way flexibility of the RMB exchange rate, and to keep the RMB exchange rate basically stable at an adaptive and equilibrium level.Development of the foreign-exchange market will be accelerated to provide exchange-rate risk management services for import and export enterprises based on actual demand in accordance with the principle that finance should serve the real economy.Reform of the foreign-exchange administration regime will be furthered to facilitate trade and investment, support the use of the RMB in cross-border trade and investment, and tap the role of local currencies in the Belt and Road Initiative. Efforts will be made to steadily promote direct trading of the RMB against other currencies and to improve the policy framework and infrastructure for cross-border RMB use. Equal emphasis will be placed on development, reform, and risk prevention. The impact of international developments on capital flows will be closely watched and macro-prudential management of cross-border flows will be improved.
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Fourth, the financial market system will be improved to enhance the role of the financial market to stabilize economic growth, facilitate structural adjustments, promote reforms, and prevent financial risks. Product innovations in the bond market will be facilitated to diversify the instruments for capital supplements by commercial banks. Assessments and identification of green finance bonds as well as asset securitization will be promoted. Regulation of financial bond issuances will be improved, and the bond business offered over the counter of commercial banks will be developed, while the mechanism will be optimized for bond and derivatives trading.The market-based risk resolution mechanism will be improved to safeguard stable operations of the bond market. The two-way opening-up of the bond market will be promoted steadily, and a more friendly and convenient institutional environment will be provided for overseas issuers and investors through policy and institutional arrangement improvements and through the market infrastructure for cross-border cooperation, such as Bond Connect operations. The development and coordinated management of financial market infrastructures will be promoted so as to ensure efficient functioning and overall stability of the market. Coordination of bond market regulation and inter-departmental regulatory cooperation will be enhanced to realize the role of the bond market in increasing the share of direct financing, preventing and dissolving financial risks, and optimizing resource allocations.
Fifth, reform of financial institutions will be deepened and financial services will be improved by increasing supply and enhancing competition. Reform of large commercial banks and other large financial institutions will be advanced continuously by improving the management of state-owned financial assets, the modern financial corporate system, and the legal person governance structure, optimizing the equity structure, establishing effective mechanisms for decision-making, execution, and checks and balances, reinforcing the risk prevention responsibilities of financial institutions, and integrating corporate governance requirements into daily business operations and risk controls. Further reforms to the management and operational mechanisms of the Agricultural and Rural Financial Service Division of the Agricultural Bank of China will be promoted, and the effects of the reforms will be closely monitored and evaluated to improve their capacity to serve the real economy at the county levels. The program of further reforming the Bank of Communications will be implemented continuously to enhance its competitiveness.Efforts will be made to carry out a comprehensive reform program of development and policy financial institutions. According to the requirements and the division of labor established in the reform programs, the PBC will work with the relevant departments to swiftly complete the follow-up tasks of improving governance structures, specifying the scope of businesses, strengthening risk compensation mechanisms, and drafting rules for prudential regulation.The reforms will be deepened to nurture development and provide a policy environment for policy financial institutions with Chinese characteristics that provide services for economic development and operate on a sustainable basis. In addition, the transformation and development of asset management companies will be further promoted.
Sixth, higher priority will be assigned to actively prevent and mitigate systemic financial risks, and a number of measures will be adopted to safeguard financial security and stability. In line with the principle that financial services should serve the real economy, efforts will be made to straighten out the monetary policy transmission channels and mechanisms to maintain stability at the aggregate level and to optimize the structure. Risk monitoring and early warnings will be strengthened to prevent and mitigate risks in key areas, and the defense line for financial security and the contingency risk resolution mechanism will be improved. Risks of NPLs in the banking sector will be resolved and managed and growth of NPLs will be controlled.Standards and regulations for asset management businesses will be unified and regulations focusing on underlying assets, the ultimate debtor-creditor relationship, and the ultimate investors will be strengthened to curb regulatory arbitrage and to safeguard market order. A differentiated credit policy will be implemented to limit credit flows to speculative real-estate purchases. Unswerving efforts will be made to actively reduce the leverage ratio. Under the prerequisite of controlling the aggregate leverage ratio, top priority will be given to lowering the leverage ratio of SOEs, resolve zombie enterprises, and steadily promoting market-based debt equity swaps in accordance with the law. Risks arising from local government borrowing will be mitigated in an active and sound manner to place local government financing under effective regulation. The special project on managing financial risks in Internet finance will continue.The mandates of the State Council Financial Stability and Development Committee will be fulfilled. Coordination of financial regulation will be reinforced and policies will be carried out with proper intensity in a well-paced manner so as to stabilize market expectations. Well-coordinated regulation of systemically important financial institutions and the financial infrastructure will be strengthened and continued efforts will be made to promote comprehensive statistics of the financial sector and the sharing of regulatory information. Risk surveillance and the early correction mechanism for deposit insurance will be improved in an accelerated manner, and the role of deposit insurance in market-based risk mitigation will be tapped. Measures will be taken to develop a multi-layered capital market and to promote the sound development of the capital market.Comprehensive policy measures will be adopted to effectivelydissolve financial risks, avert moral hazards, and defend the bottom line of preventing systemic financial risks.
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