In its recently released China Financial Stability Report (2024), the People's Bank of China (PBOC) provided a comprehensive overview of the country's financial and economic performance in 2023. Against a backdrop of global uncertainties and domestic challenges, China managed to balance reform, development, and stability, achieving steady progress in key areas.

1. Supporting the Real Economy

The financial system provided vital support for economic recovery through the following measures:

• Monetary Policy Adjustments:
  The PBOC lowered the required reserve ratio (RRR) twice by a total of 0.5 percentage points, injecting over RMB1 trillion in medium- and long-term funds. Additionally, policy rates were reduced twice, leading to sustained declines in market interest rates.

• Targeted Lending Growth:
  Loans to key sectors such as inclusive micro and small businesses (MSBs), manufacturing, and high-tech industries grew at rates surpassing overall loan growth, ensuring strategic alignment with economic priorities.

  
  

2. Stabilizing the Real Estate Market

To address challenges in the real estate sector, financial measures were rolled out on both the supply and demand sides:

• •Policies like the "16 Financial Measures" were extended to support financing for real estate enterprises.

• •RMB500 billion in pledged supplementary lending (PSL) was allocated to support government-subsidized housing and infrastructure projects.

• •On the demand side, personal mortgage loan requirements were eased, including lower down payment ratios, interest rate reductions, and revised standards for identifying the number of housing units.

  
  

3. Addressing Local Government Debt Risks

Efforts to mitigate debt risks associated with financing vehicles included:

• •Establishing mechanisms to resolve existing debts.

• •Strictly controlling new debt issuance under market principles and legal frameworks.

  
  

4. Defusing Risks in Financial Institutions

To strengthen the banking system, the following measures were implemented:

• •Identification and disposal of non-performing assets.

• •Reform and risk mitigation for high-risk institutions, supported by robust risk monitoring and early warning frameworks.

• •Prudent resolution of issues in smaller financial institutions.

  
  

5. Managing External Shocks

To safeguard against global uncertainties, China improved its monitoring of cross-border capital flows and adjusted macro-prudential parameters:

• The foreign exchange RRR was lowered, while mechanisms to prevent exchange rate overshooting were reinforced.

• A balanced foreign exchange supply and demand helped maintain stability in the external financial environment.

  
  

6. Strengthening Financial Stability Frameworks

Legislative progress on the Financial Stability Law accelerated, while resources for risk resolution were bolstered. The Deposit Insurance Fund and Financial Stability Fund were expanded, providing greater security for key financial institutions.

China's economic fundamentals remain solid, offering resilience, potential, and long-term stability. The financial system will adopt proactive macroeconomic policies to support high-quality development while addressing risks with precision. Key focus areas include:

• •Expanding technology finance, green finance, inclusive finance, and digital finance.

• •Enhancing the resilience of the foreign exchange market and stabilizing market expectations.

• •Strengthening early warning and resolution mechanisms for financial risks, ensuring no systemic risks arise.

• •Bolstering protection funds to reinforce financial stability, including expanding the Deposit Insurance Fund and the Financial Stability Fund.

  
  

China's financial sector is set to play a pivotal role in navigating an increasingly complex global environment while driving sustainable economic growth domestically. Through targeted reforms, robust policies, and innovative tools, the PBOC is positioning the financial system to balance resilience with transformation, ensuring stability while embracing new opportunities.